When it comes to new hotel construction, upper-midscale and upscale hotels dominate the landscape. According to Lodging Econometrics’ Q4 2015 report, three industry giants — Hilton Hotels & Resorts, Marriott International Inc. and InterContinental Hotel Groups PLC. — account for 37-per-cent of current worldwide hotel construction, with 11,130 ongoing hotel development pipeline projects.
A slew of factors shaping the industry are fuelling a market shift towards recognized brands. “Brand awareness, economics, geography and world events have forged a perfect storm, which has allowed Hilton, Marriott and InterContinental to accelerate their stranglehold on the industry,” says J.P. Ford, senior vice-president and director of business development for New Hampshire-based Lodging Econometrics.
“Those three companies have wide consumer acceptance,” explains Ford. “Independent [hotels] are in the pipeline, but frankly, in the past 15 years there has been a branding phenomenon. Some developers want to do independents because they can do it their way. But, they don’t have brand marketing power. You don’t need many designers; you don’t need to spend a lot with architects. Those projects are designed for quick development — get the thing built and get it open.”
According to Ford, the six hotel categories are all performing differently. “Luxury development, especially in the U.S., is not much to speak of — same with economy. Upper-midscale and upscale, [those] are dominating these days.” Luxury hotels are expensive to build, says Ford, making it tough to secure financing. “The lender sweet spot is the upper-midscale — hotels with great parent companies and great existing networks.”
According to the report, Europe has a total of 897 projects comprised of 146,744 rooms — a 5.3-per-cent and five-per-cent increase respectively compared to the previous year. London has 21 projects with 3,331 rooms currently under construction, a 19.2-per-cent and 28.6-per-cent decline in both categories. However, early planning hotel construction projects are up 35.3-per-cent and 42-per-cent for projects and rooms. Turkey experienced sluggish growth, increasing its projects by just two to 77, compared to 2014, with 12,496 rooms. Germany had a very strong year, with 136 projects and 27,271 rooms, a 37 project increase when compared to 2014.
Based on these figures, no one geographical location dominates. In fact, hotel construction appears to be evenly spread out worldwide, with the top cities being New York City, Seoul, South Korea, Dubai, U.A.E., Shanghai, China and Jakarta, Indonesia.
Not surprisingly, New York remains a hot location for increased development, leading with the most pipeline projects. “New York is a major gateway into the country and an extremely well-known city throughout the world,” says Ford, while “Dubai, over the past five to eight years, has been an up-and-coming destination. It’s had some peaks and valleys from time to time, but the tremendous amount of wealth there transfers into development projects. And, Shanghai — people want to build where the population and demand is, so its inclusion on the list doesn’t surprise me at all.”
Ford also emphasizes the Middle East’s strong performance in hotel construction; “At the end of 2015, compared to the end of 2014, Middle East [hotel development] pipeline projects were up 24-per-cent by and 40-per-cent by rooms,” he says. “That’s an extremely healthy increase. Saudi Arabia is at a cyclical high. The United Arab Emirates, led by Dubai, is very high.”
From a country perspective, a new player joins the list in fourth spot: Brazil. While it remains a popular tourist destination with a population of more than 200 million, there are two contributing factors which have caused the South American country to shoot to the top of the hotel construction list. “[Brazil’s] a little bit unstable, but the Olympics are going there, and they had the World Cup,” explains Ford. “They have two major world-class events in that country [within a two year time span]. And we see [hotel development] when people know demand is coming. Developers will build in anticipation of demand.”
While Ford admits hotel construction isn’t running at a fervent pace, he believes it’s a good clip. “In the first quarter of 2016, there was another uptick in the pipeline, but it was small — not a big jump,” he says. “Some [industry experts] might say we’re levelling off, but in the next six-to-nine months we may see more levelling off,” warns Ford, adding “the economic conditions in the [U.S.] are quite good [right now]. Interest rates are low, the economy is growing, unemployment is in pretty good shape, people have discretionary income, they have money to travel — they want to stay in newer hotels. So, there’s nothing on the horizon that says that the pipeline is going to slow down.”
Ford believes the global hotel construction trend is parallel to the U.S. market. “Growth is about 900 hotels in the U.S. this year with about 102,000 rooms — from a growth rate perspective that’s about two-per-cent,” he says. “So, it’s slow, but it’s steady. We’re not in an overbuilding situation.”
When asked which part of the world he sees as the best and most stable investment for global hotel construction, Ford is quick to answer. “The U.S.,” he says. “It’s a solid bet. The long-term outlook and horizon look very strong. I’d prefer to invest in my own backyard anyway.”
Volume 28, Number 4