Pipeline Still Progressing

The Coronavirus pandemic has had a clear and profound impact on U.S. hotel performance over the past several months, however, somewhat surprisingly the impact on development has apparently been minimal thus far.

That was the conclusion offered by STR’s Emmy Hise, senior consultant, STR, during this week’s virtual ALIS Summer Update — Dallas. Hise pointed out that “despite the bad recent hotel performance the development pipeline is actually very active.”

Hise further noted that in February the U.S. lodging industry actually exceeded its previous peak of new projects—which was reached at the end of 2007 just prior to the last recession—with some 220,000 rooms under construction. She did note that since April “it’s been slowly starting to trend down again, although it’s still above the 2007 peak.”

Furthermore, a closer look at the U.S. Pipeline by Phase—which compares projects through June versus the same time period in 2019—showed an uptick in three of the four phases. There are currently 215 projects in construction compared to 202 at this time last year, which is an increase of 7 percent.

Projects in the final planning stages were up 14 percent, from 225 in June 2019 to 257 this year. There is a drop is projects in the planning phase, which now has 201 projects versus 229 last year, a decrease of 12 percent.

Meanwhile, projects under contract grew to 673, up 2.6 percent from 656. “The only phase right now that’s starting to show decline is the planning phase, but when you roll it all up the active pipeline is positive 2.6 percent compared to last year,” said Hise.

She further indicated that despite the recent decline in projects since April there is little evidence that would suggest it’s related to the pandemic. “One might think that the trending down of in-construction could be a result of COVID with deferments and abandonments but our data isn’t showing that. Considering there are nearly 5,800 active projects in the U.S. not a lot of projects have actually moved to deferred or abandoned,” she said.

In assessing the types of projects under construction, Hise noted, “it’s strongly dominated in the upscale and upper-midscale scales.” Those respective segments actually represent 61 percent of all in-construction rooms for the total U.S. pipeline.

In addition, Hise did note that performance is actually improving, albeit slowly. She stated that in June supply was down only 6.2 percent compared to May when it was down 11.4 percent. “That’s a good sign that we’re seeing things open up,” she said.

Hise further commented, “even with the added supply occupancy is still growing.” Demand increased from 48 million in May to some 63 million in June, which resulted in 42 percent occupancy for June, up from 33 percent in May. “We are trending up,” she said. As a point of comparison, last year at this time occupancy was 73 percent. Hise put that in perspective. “We’re halfway through the year, and four of these months were extremely impacted by COVID,” she said.

Year-to-date average daily rate is $109, which is some $22 less than 2019. A look at RevPAR numbers, meanwhile, “puts in context the unprecedented nature of decline in this downturn.” For example, U.S. RevPAR in April was down some 80 percent from last year. In May that improved to 74 percent, while there was a 61 percent decline in June. “I never thought I’d say a negative 61 percent RevPAR is a good thing, but it’s starting to shoot back up so that’s good news for the industry,” said Hise.