The travel industry was one of the hardest hit by the pandemic, and in the U.S., the uncertain economy in recent years has presented additional challenges. For the hotel industry, it has been a slow battle back to pre-COVID times, with recovery slower than anticipated.
The American Hotel & Lodging Association shared in its 2024 State of the Industry Report a few statistics that seem to give reason for optimism (and some lingering concerns):
View the full report from AHA.
What about hotel development?
But despite inflation and high interest rates, hotel chains are optimistic about the future. According to Lodging Econometrics’ Q2 2024 U.S. Hotel Construction Pipeline Trend Report, there are 6,095 hotel projects underway—a 9% year-over-year increase compared to Q2 2023.
Year over year, projects currently under construction in Q2 2024 increased by 10%. Projects slated to start construction in the next 12 months increased 5%, and those in the early planning stages increased 13%.
About half of those projects are concentrated within the upscale, upper midscale and midscale chains, and 36% is attributable to extended-stay brands. Renovation and brand conversion activities have also seen significant growth: 14% year over year (2,041 projects combined).
The top markets with the biggest construction pipeline in Q2 2024 are:
Hotel chains are planning ahead for expansion and renovations at an impressive pace. However, these decisions are not made on a whim. They are based on a thorough analysis of market data and factors. Here are some of the critical considerations:
Occupancy - Historically, hotel chains made expansion decisions largely based on hotel occupancy in a market. While occupancy remains an important metric, it is crucial to understand the drivers of occupancy. Hotels must assess the strength of a market to determine the viability of future locations. This involves understanding demand generators such as:
It’s also important to note that occupancy can vary across the market, making it essential to evaluate submarkets within the greater market.
Rates and Revenue - Room rates and revenue per available room (RevPAR) are key indicators of a hotel's financial health and the market's potential for profitability. While room rates often correlate with occupancy levels, they can also provide insights into market opportunities or challenges. For example, a market with high occupancy but low room rates might suggest intense price competition, whereas a market with high rates could indicate strong demand and the potential for new entrants. Understanding these metrics helps hotel chains evaluate whether an area can support profitable expansion.
Guest Demographics and Lifestyles - Customer analysis in the hotel and lodging industry can be much more challenging compared to retail or other service businesses. It is not uncommon for more than half of a hotel’s guests to live outside the market, making traditional trade area analysis problematic. However, sources like foot traffic data that trace hotel guests back to the origin of their trip, combined with demographic and lifestyle data, can offer valuable insights into who is visiting your properties.
Demand Drivers - Customer analysis in the hotel industry typically includes understanding the drivers of stays—whether that be business travelers wishing to be close to downtown or corporate offices, leisure travelers visiting attractions and shopping, or those looking for a place to spend the night on a long road trip. Understanding why a visitor will choose an area is as important as understanding who your visitor is.
Competitor Analysis - In all industries, understanding your competition is vital. For service providers such as hotels and restaurants, avoiding competition altogether often means choosing lower-quality locations, leading to lower performance. Many service businesses benefit from choosing high-traffic, high-visibility locations, even if competition is intense. Whether it makes sense to locate in a hotel cluster with numerous other properties or to choose a location away from the crowd depends on local dynamics. Zoning or local restrictions might require one to locate in an area with other hotels. An area of high hotel density and high occupancy will undoubtedly be more attractive than one with few hotels and low occupancy or demand. Hotels must also consider secondary competition. With the rise of short-term home rental services like Airbnb and VRBO, it is important to assess not only hotel competition and occupancy but also lodging alternatives.
Traffic and Visibility - Beyond being located near demand drivers like airports, downtowns, retail, corporate parks, or recreation areas, hotels often find success in locations strategically positioned between population centers or along major arteries that lead to these demand drivers. Understanding traffic patterns, including the volume, origin, and destination of traffic, is crucial. Many hotels perform best in areas with high traffic, easy on-off access from freeways and highways, and good visibility to either the property or signage.
Whether you run a small, boutique hotel chain or a larger, national brand, you know that careful market analysis is key to successful expansion. While you might get lucky by opening a hotel in a "hot" market, the risk of failure is significant without thorough vetting.
SiteSeer can help you analyze markets with high-quality data and evaluate sites methodically using specific performance indicators:
SiteSeer offers hotel chains the tools and data needed to make informed, strategic decisions about where to expand, renovate or rebrand. By leveraging SiteSeer’s robust analytics and comprehensive data sources, you can reduce risk and maximize the potential for success in a competitive market.