Hotel construction has had a very good year. In fact, year-over-year numbers for March 2024 show record growth. If interest rates drop, construction planning and starts could enjoy even healthier advances to meet an ever-busy front desk. 

ConstructConnect, an economic industry analyst headquartered in Cincinnati, reported put-in-place building construction spending for lodging increased 23.5% between 2022 and 2023 ($14.2 billion in 2022 to $17.6 billion in 2023). The company expected 2024 starts to advance 13.8% ($14.3 billion). 

Similarly, Dodge Construction Network, Bedford, Mass., forecast continued growth of 16% ($14 billion). Midscale and upper-midscale hotels are fueling these numbers as the public starts taking vacations again and business travelers return.

Growth around the country

JP Ford, principal director of global business development for Lodging Econometrics (LE), said, “We have seen a 9% year-over-year increase in pipeline projects (March 2022 through March 2023) and a 7% y/y increase in rooms. We hit an all-time high in Q4 2023 and surpassed that again in Q1 2024 in terms of projects. That is a very healthy y/y rise.” 

The 9% growth reported represented 6,065 projects (702,990 rooms) in the pipeline. 

LE, based in Portsmouth, N.H., is a business development/database program provider for major hotel franchise companies, lodging industry vendors, ownership and management groups, Wall Street analysts, consultants and other companies.

The firm further reported that just over half of projects in the hotel pipeline were upscale, upper-midscale and midscale chain scales. In Q1 2024, upper-midscale and midscale segments hit record-high project and room counts. The luxury chain scale also reached a record-high project total.

In terms of construction starts, LE projects the next 12 months should represent 2,259 projects with 260,968 rooms (a y/y 10% rise in projects and 8% increase in rooms). As of April 2024, 1,144 projects/141,336 rooms were under construction.

LE reported the U.S. markets with the greatest number of projects under construction at the close of Q1 were New York (47 projects/7,655 rooms); Dallas (25 projects/3,059 rooms); Nashville, Tenn. (22 projects/2,828 rooms); Atlanta (21 projects/2,588 rooms); and the Inland Empire (20 projects/2,181 rooms), which represents counties in Southern California around San Bernardino and Riverside, bordering on Los Angeles County. 

In starts over the next 12 months, Dallas leads (77 projects/9,269 rooms); followed by Atlanta (56 projects/6,656 rooms); Phoenix (56 projects/6,853 rooms); the Inland Empire (54 projects/5,369 rooms); and Nashville (49 projects/6,600 rooms). 

Projects in early planning also hit a record 2,662 projects/300,686 rooms. Dallas again led at the end of Q1 (83 projects/9,554 rooms); followed by Atlanta (76 projects/8,685 rooms); Nashville (56 projects/6,771 rooms); Austin, Texas (51 projects/5,608 rooms); and Orlando, Fla. (49 projects/11,442 rooms).

In describing midscale activity, using Q4 2023 as an example, the online publication Hotel Dive reported that Hyatt added the upper-midscale extended-stay brand (Hyatt Studios) to its planned construction pipeline, including breaking ground on the first property being built in Mobile, Ala. 

Conversions also showed strength. Hotel Dive reported IHG Hotels & Resorts opened the doors to its first midscale conversion brand, Garner. Conversions represented 39% of IHG’s openings and 36% of signings. 

Meanwhile, Marriott International showed its commitment to property conversions, which accounted for 25% of room additions and 40% of rooms signed in 2023. Signaling its continued investment in extended stay, in June 2023 the company announced its Project MidX Studios, a midscale extended-stay brand. 

“With our plans for Project MidX Studios, we will have an extended­-stay product in every lodging tier—from affordable midscale to upper-upscale and luxury—for our customers and our owners and franchisees,” said Noah Silverman, Marriott International’s global development officer for the United States and Canada.

Hotel Dive noted that hotels are not turning away from the higher­-end luxury and lifestyle segment, citing Hyatt Hotels, Hilton Hotels & Resorts and IHG expanding their planning and project pipelines in this space. 

Dodge Construction broke down hotel classes by stage of activity in 2023. Extended stay led the way. The breakdowns were as follows: preplanning (24%), planning (32%), final planning (44%) and construction underway (36%). The next strongest segment was midmarket without food. Upscale came in third.

The effect of the pandemic

LE’s Ford walked through how the COVID lockdown affected commercial and hotel construction before feeding a resurgence in hotel project work. 

“The pipeline at Q1 2020 was steady or dropped just a little bit due to a few projects either canceled or postponed in the middle of COVID. If you were a franchise company, you needed to be talking to developers to sign deals. Zoom was all you could do, and that hurt the in-person relationship building needed to persuade developers to do projects. The necessary activity needed to sustain the hotel pipeline was gone or hampered. Impacts were felt into 2022, creating a lull in openings,” Ford said.

Hotel construction, however, did not stagnate for long. There was enough work in the pipeline and city leaders lifted construction bans. Workers picked up where they left off, and feet on the ground were bolstered by a healthy amount of planned work.

“Crews went back to work, hotel projects recommenced, were finished and opened,” Ford said. “Openings were strong in 2021, representing 829 hotels and 106,769 rooms.”

Hotel conversion activity came back more slowly. 

Ford explained that a hotel owner with a franchise company must execute what are called product improvement plans (PIP), fundamental property changes required within a deadline. 

“When COVID hit, hotel occupancies plummeted, rates plummeted and some hotels shut down,” Ford said. “Owners did not have the money to do much and there was little pressure for PIPs. [Now] we have more renovations than we have ever had. It is catch-up time.”

Though conversions are at an all-time high, new construction projects dominate. 

“Signings are now very strong and continue to grow quarter over quarter,” Ford said. “A lot of them are in the early planning phase with starts in the next 12 months.” 

Chain properties are heavily represented in planning and construction. Those include upscale chains (Courtyard, Residence Inn, Hilton Garden Inn), and the upper-midscale chains (Fairfield, Holiday Inn Express). 

“We’re seeing most of the activity for new construction happening in the suburbs,” Ford said.

Ford shared that the resurgence in extended-stay development grew out of the pandemic. 

“During COVID, when people did venture from their homes for a getaway, they made sure they had everything in their room that they needed,” Ford said. “They did not interact with the outside world so much even though they were on vacation, or on a business trip. As a result, that at-home feel while away from home trend was cemented in the traveling public’s [psyche] much more than it had previously been. That is why you see this popularity of extended-stay hotels. Developers are strongly behind this hotel format.”

A technological note to contractors 

In its “2024 State of the Industry Report,” The American Hotel & Lodging Association (AHLA) presented its annual outlook for the hotel industry. AHLA found that artificial intelligence and cloud communication were trending as a way to enhance hotel operations and the guest experience. Notably, parking garages were a major focus. According to AHLA, that means an uptick in license plate recognition, allowing for ticketless parking; streamlined enforcement; easy tracking; automated parking wait-time monitors; text-to-retrieve, helping valets retrieve guests’ vehicles; and contactless payment options with self-parking, gateless solutions. In sum, there has been a lot of low-voltage work to support wireless functions.

According to Hotel Tech Report, an online digital newsletter and resource: “Hotel trends that were expected to take 10 years took 10 months to evolve and the pandemic accelerated our industry into the future. The hospitality industry is changing faster than ever before, and it is nearly impossible to keep up with all the hotel, travel and hotel management trends impacting this dynamic business.” 

Author and Hotel Tech Report’s co-founder, Jordan Hollander, referred in part to guest rooms now including voice-activated control, wireless charging and even the ability to accept streaming devices from home. This all contributes to the homey trend.

Future growth 

The same headwinds faced by other construction sectors in the commercial space affect hotels, too. There is caution due to interest rates, the ability to secure an attractive loan and the rise in construction materials cost.

“Now if you had a break in interest rates, or a strong signal that a drop is coming very quickly, it would be welcome news to the industry. It has gotten very cloudy,” Ford said. “Pipeline growth is tricky to answer moving forward. We have just broken through an all-time high. Certainly, in the next couple of quarters, I anticipate more growth. Where it goes from there remains to be seen.”

LE forecasts hotel openings for 2024 at 661 new hotels (75,989 rooms). In 2025, it anticipates 790 hotel openings (85,561 rooms). If the economy successfully wrestles down inflation and the Fed starts bringing down interest rates this year, it will further fuel the market. 

“Certainly, people want to go on vacation now more than ever, and business travel is starting to come back, too,” Ford said. “You got to move that pipeline to shovels in the ground, finishing construction and opening.”

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