Hotel Construction at All-Time High While Occupancies Dive

The U.S. hotel industry recorded 214,704 rooms under construction in March 2020, the highest end-of-month total ever reported by lodging research firm, STR.

The industry’s previous construction peak happened in December 2007 with 211,694 hotel rooms in construction. That level was then slightly surpassed in February 2020 at 211,859 rooms in the final phase of the development pipeline.  

“The number of rooms in construction will likely remain high, just as it did during the pre-recession peak,” said Jan Freitag, STR’s senior VP of lodging insights. “Because of the coronavirus pandemic, the industry is no longer operating in a record-setting demand environment, so there isn’t the same rush to open hotels and tap into that business. In addition to a lack of guests awaiting new hotels, there are also limitations around building materials and potential labor limitations from social distancing. With all of that considered, projects are likely to remain under construction for a longer period.”

The news comes in the midst of hotel industry’s ongoing nightmare, which continued last week as occupancy rates dipped nationwide to a paltry 21 percent as a result of coronavirus shut-downs.

The country’s occupancy rate for the week ending April 11 was just slightly worse than the previous week and 70 percent lower than a year ago, according to STR. RevPAR, or revenues per available room, declined nearly 84 percent from the same time last year to $15.61.

Revenue per available room in New York was $31.67 last week, a decline of nearly 77 percent from $136 at the beginning of March, says The Real Deal, a real estate journal. Los Angeles saw occupancy rates drop more than 74 percent and RevPAR decline about 85 percent to $22.78. Similarly, Chicago saw an occupancy decline of 78 percent while RevPAR $12.78. Miami is looking at an occupancy rate of roughly 20 percent and RevPAR rates of $18.02.

“It’s worth remembering,” Freitag notes, “in 2008, the projects that were in the ground continued to get built, while the projects that were in the planning or final planning stages were most likely shelved. We expect the current pipeline to follow a similar pattern and will continue the monitor the number of projects that are halted in the coming months.”

Four major markets reported more than 6,000 rooms under construction between new builds and expansion projects. New York led with 14,051 rooms, which represented 11.0% of the market’s existing supply, followed by Las Vegas (9,082 rooms, 5.5% of existing supply).

*  New York: 14,051 rooms (11.0%)

*  Las Vegas: 9,082 rooms (5.5%)

*  Orlando: 8,737 rooms (6.7%)

*  Los Angeles/Long Beach: 6,640 rooms (6.3%)