New construction is always a healthy symptom of a booming economy. But certain types of new construction produce more hopefulness than others. New hotel construction, for example, is a sign that investors and entrepreneurs are optimistic about travel, tourism, and financial stability.
Hotel Construction Reports Fuel Optimism
According to data published in the most recent Lodging Econometrics’ Construction Pipeline Trend Report, the global hotel construction pipeline climbed to an eight-year high in 2018. The year ended with 13,573 new projects resulting in some 2.27 million rooms in various stages of development and construction. That was a 7 percent increase in projects and a 6 percent increase in rooms (year-over-year).
The most intriguing data point from the study was that the United States led the entire world in both hotel projects (5,530) and rooms (669,456). In total, the U.S. accounted for 41 percent of the total global pipeline. The next closest nation was China (20 percent).
These exciting trends have continued into 2019. One of the latest reports, published in the spring of this year, showed that hotel projects for the month of April enjoyed a 9.9 percent year-over-year increase in number of rooms in the final phase of development.
The growth of hotel construction is being fueled by numerous factors – including consumer spending, optimism about financial markets, and better financing options.
Hotel construction is a complicated endeavor. Leaving the technical aspects of engineering aside, there are the financial challenges of getting a massive project funded and completed. Not only do builders and investors have to find ways to finance the construction, but they also have to deal with things like furnishing hotels to prepare them for serving guests.
Over the past few years, favorable interest rates have given investors the green light to proceed with major projects. In particular, the willingness of lenders to give out loans for furniture, fixtures, and equipment – also known as FF&E – has added a degree of practicality to these projects by simplifying the financing portion of the equation. (Check out this informative FF&E hotel guide to learn more about how these loans work and why they’re so important for accounting.)
Hot Markets Abound
According to Lodging Econometrics, there are five American cities leading the way in hotel construction. They are:
- New York City. There are currently 170 hotel construction projects at some point of development in New York City. These projects consist of a whopping 29,247 rooms. This year alone, 63 new hotels are expected to open up. While things will slow down a bit in 2020, there are already 44 scheduled openings on the horizon.
- Times have rarely been better in Dallas – at least in terms of hotel construction. There are 163 projects in the construction pipeline, with 30 hotels being opened this year (adding 3,604 rooms to the market). In 2020, Dallas is expected to have the third highest number of hotel openings (behind only New York City and Los Angeles).
- Los Angeles. Speaking of Los Angeles, there are 158 projects currently in the hotel construction pipeline. These projects will lead to an additional 25,578 rooms in the City of Angels. The plan is for 42 new hotels to open their doors by the end of this year, with another 35 on tap for 2020.
- People outside of the state of Texas continue to underestimate what a sleeping giant the city of Houston is. It has one of the healthiest and most diverse economies in the country and the 151 projects in the hotel construction pipeline are living proof. It’s projected that 28 hotels will launch this year, totaling 3,342 rooms.
- Few cities are growing faster than Nashville. It now has the fifth largest hotel construction pipeline in the country, with 116 projects totaling 15,599 rooms. With 34 projects currently under construction, the Music City has as much activity as larger cities like Austin and San Jose. Approximately 23 hotels will open by the end of 2019.
Save Nashville, these are the usual culprits. But it’s not as if hotel construction projects are limited to these areas. From smaller towns and suburbs to coastal tourist destinations and American territories, skyscrapers are dotting the skyline wherever there are people.
Investors Taking Shots
We experience surges of hotel construction every couple of decades. These periods usually occur on the back end of a recession when savvy investors are able to gobble up real estate at discounted prices. They then wait for interest rates to cooperate and projects ensue. Once the major players dive in, others in the industry conjure up the courage to follow suit.
This time around, we’re seeing some exciting hotel construction trends. Green, LEED-certified buildings are pretty much the norm. Repurposed buildings also carry massive appeal with today’s millennial generation. So instead of only seeing brand new construction, we’re also experiencing a steady influx of renovated buildings – including old warehouses, factory buildings, and defunct hotels.
With hints of a possible economic slowdown in the future, it’ll be interesting to see what happens. But for now, investors are energetic and bold – and that’s a good thing for the larger economy.