Dive Brief:
- The volume of U.S. hotel rooms under construction decreased year over year for the ninth consecutive month in September, falling to the lowest point in 10 years, according to new CoStar data.
- Last month, there were 137,956 hotel rooms under construction, representing a 12.3% year-over-year decline. The upper midscale segment had the most rooms (39,075) under construction in the month, compared to other chain scales.
- The decline comes amid economic uncertainty, which “often leads to inaction,” Isaac Collazo, senior director of analytics at CoStar subsidiary STR, said in a statement. He added that “developers and financial institutions are still waiting for a more favorable environment.”
Dive Insight:
Higher building and material costs are hampering hotel groundbreakings, Collazo said. “We don’t foresee the cycle turning for some time.”
According to an August American Hotel & Lodging Association survey, these rising costs and demand challenges are causing a significant portion of hotel owners nationwide to delay or cancel development and renovation projects.
Hotel company chief development officers at The Lodging Conference earlier this month said tariffs and high interest rates have also had a negative impact on hotel development this year. However, multiple executives said a downturn can be an opportune time for new construction, with the upscale and extended stay segments, in particular, remaining strong areas of growth.
While new construction may not be feasible for all developers right now, repositioning hotels into upper-tier brands is a big opportunity, executives at the conference said.
During a Wednesday earnings call, Hilton CEO Christoper Nassetta said “the conversion opportunity is immense, globally.” Hilton and Marriott International both launched conversion-friendly collection brands earlier this month.
U.S. RevPAR in September also decreased by 2.1% year over year, according to CoStar data published earlier this week.
CoStar and Tourism Economics downgraded their 2025 U.S. RevPAR growth forecast in August. During The Lodging Conference, Collazo said he expects that outlook will be lowered again in November.
