The development pipeline is growing and the industry is poised to see more openings during a single year in 2015 than any year since 2009. That doesn’t just mean great opportunity for hotel industry developers and suppliers, but shows the hotel economy has roared back to life and is moving on to the next stage of the cycle.
We all know the hotel business is a cyclical and we’re three plus years into the current rebound. By many accounts the lodging sector is at, or close to, record levels for industry fundamentals. And when that happens banks and Wall Street investors can’t help but get lured into developing and building new hotels. For industry vendors that means a nice transition from supplying hotels under renovation to striking deals to help create new ones. Which is a good thing since the record number of property renovations we’ve enjoyed during the past few years will inevitably start to ebb.
AT BITAC Purchasing & Design West this morning we took a look into what is happening with industry development and provided industry buyers and suppliers with keen insight from which they can build their businesses with during the next few years.
For those not in the know, BITAC is the industry leading one-on-one meetings and relationship building event. Taking place at the Hotel Del Coronado, the 44th BITAC event attracted the ultimate group of insiders and decision makers representing leading and forward thinking companies. And they’re all here to come together at BITAC to problem solve, network, sign deals and exchange ideas to move forward the quality of experiences for hotel guests, while adding profits to the bottom line. There’s even time to cut loose, be social and network in a luxurious and relaxed environment. The next can’t miss BITAC will be December 8-10 and focus on upper echelon Owners who will come together at The Breakers in Palm Beach, FL.
This morning we spoke with Bruce Ford, SVP Business Development, with the real estate authority Lodging Econometrics, who shared his expert insight regarding how the industry can master current market dynamics.
“New projects are coming, and we can expect many new project announcements in the future. Funding has improved in 2013 and owners are turning the corner and wanting to become developers again. We see an increase of the pipeline by 25 percent,” said Ford to the sold out BITAC audience, also noting renovations may be cresting in the next couple of quarters.
“Everything seems to be happening at once. The industry is really going to take a jump as companies on Wall Street start reinvesting in the industry,” Ford added.
Not surprisingly the hotbed of development is in the Upscale and Upper Midscale segment, which has proven to have the highest rate of return with new construction and development. Soon enough expect to see a sharper upward swing in those types of rooms compared to other segments since Upscale and Upper Midscale hotels are not just profitable to operate but beloved by the typical hotel consumer.
Ford said there will be a gradual upward tick of the new construction pipeline in 2014 and 2015 with things opening up in 2016. One benefit of moderate growth is it will keep the supply-demand relationship in check longer, which will help extend the current cycle’s upswing.
Currently there are 2,819 hotels with 359,000 rooms in the pipeline and by the end of the year expect to see 390,000 rooms in the pipeline, said Ford. For reference, the most hotels ever in development at once was in Q2 2008 when 785,000 were in various stages of the pipeline. The end of 2014 will see approximately 450,000 rooms in the pipeline rising to 525,000 rooms in 2015.
New Construction will have the most openings in five years in 2015. Wall St. is already lining up more secondary offerings and several IPOs are coming during the next four to six months. Additionally 300 plus room projects will begin to migrate into the pipeline in 2015 and 2016.
Larger 300 New Construction projects will begin to migrate into the pipeline and there should be several years of accelerated investment to the Industry as we climb the cycle until 2017.