Hotel Pipeline in U.S. Tilts Toward Midscale and Upscale Properties

The U.S. hotel pipeline is booming, and hoteliers are looking for more upscale and midscale lodging options.

Economy hotel construction only represents 2% of the pipeline, with about 7,500 rooms, according to the June Lodging Econometrics Pipeline Trend Report.

“There’s very little competition in the economy sector and they don’t get as much revenue per available room,” says Jan Freitag, senior vice president a STR, which published its own June pipeline report with similar findings. “These hotels often get rebranded at a lower price.”

The emphasis on midscale and upscale hotel development is consistent with market developments, including the successful IPOs of limited-service hotels such as La Quinta and Extended Stay America.

STR’s report found hotels are designing new properties with features aimed at attracting millennials.

Freitag says the lobby is one of the most important parts of the hotel for millennials and many properties are including grab and go food cafes and ensuring there’s plenty of lounge space and outlets, along with Wi-Fi.

He says guest room furniture must accommodate the multi-tasking nature of millennials, allowing for beds to double as sofas. This generation also doesn’t put workouts on hold while traveling, and gyms are starting to get prioritized because of that.

“For a lot of companies, gyms aren’t just an afterthought any more,” he said.“Millennials are accustomed to crossfit environments and appreciate having that available at their hotels.”

Coming out of the recession, hoteliers are confident that the more than 110,000 rooms currently under construction are needed. This number is down from pre-recession construction of 300,000 rooms in 2007, but it has increased every year since 2010, says Freiberg.

“For the first half of this year, 63% of rooms in the U.S. were occupied each night, the question is whether or not 37% unoccupancy is worth the risk, and a lot of developers are saying yes,” he said.

The brands building the most are Holiday Inn Express with 26,000 rooms, Hilton’s Hampton Inn with 19,600 and Marriott International’s Residence Inn with 17,000.

STR found the New York City area has the most new rooms under construction at 14,049, followed by Houston with 4,530 and Miami with 2,709. Seattle has the highest year-over-year percentage increase in construction at 396.1%, with Washington, D.C. having the largest decrease, falling 27.4% year-over-year.