The U.S. hotel construction pipeline, according to research group Lodging Econometrics, continued to grow in the second quarter of 2019, even in an environment of reduced business spending due to tariffs and a sluggish global economy.
The total U.S. construction pipeline was at 5,653 projects, up 6% year over year from the second quarter of 2018. This also represents a 9% increase in rooms under construction for the same period. The number of hotel projects is 230 short of beating the all-time pipeline high of 5,883 in the second quarter of 2008. More than 1,720 hotel projects were under construction in Q2 — 2,552 were scheduled to start construction within 12 months and 1,374 were in the planning stages.
Lodging Econometrics said that despite the robust pipeline, the quarter's new project announcements were at their lowest since the fourth quarter of 2014, which suggests that the pipeline could be topping out. Hotel brand conversions are also at their lowest level since late 2016.
One hotel company that has an aggressive construction program is Choice Hotels' Comfort brand. Comfort is set to open one hotel per week in 2019 with more than 300 in its pipeline. Choice said that 80% of those projects are new construction and that more than 40 are slated to open in major markets like Dallas, Nashville, Pittsburgh and San Diego. The most recent hotel opening for Comfort is an all-suite hotel in the Columbus, Ohio, area.
As construction labor and material costs continue to escalate, and as contractors all over the U.S. try to overcome skilled trade shortages, modular construction has become a go-to building method for an increasing number of hotel developers, including some of the major players.
Marriott has opened more than 30 hotels using modular construction methods and announced in April that it would build a $65 million AC Hotel in New York City. According to Marriott, it would be the tallest modular hotel in the world.
Hilton has also gone modular. Its Home2 Suites brand opened the first San Francisco Bay area modular hotel in June and the 57,000-square-foot property, which is located near the San Francisco International Airport, was built in just 16 months. Each of the hotel's rooms, fabricated offsite, include an in-room kitchen, separate living and sleeping areas and modular furniture.
Although contractors have benefited from modular construction's factory floor-type efficiencies, it can also reduce the need for construction workers. ExxonMobil-SABIC, which is building a $10 billion ethane cracker and plastics plant in Corpus Christi, Texas, recently announced that its switch to a modular design cut its construction workforce needs from a projected 11,000 positions to 6,000.