US hotel rooms in construction show no sign of acceleration

Total pipeline shows additional activity, but financing remains the sticking point

By Jan Freitag | CoStar Analytics | February 5, 2025 | 7:17 AM

The higher interest rate environment continues to keep U.S. hotel development in check.

In 2024, the quarterly average number of hotel rooms in construction was roughly 156,000. This compares to the quarterly average of around 151,000 rooms in 2023 and around 155,000 rooms in 2022. In the much lower interest rate environment of 2019, the average quarterly count stood at around 201,000 rooms.

Smaller construction counts lead to below-average supply growth. Last year, U.S. hotel supply grew by 0.5%, a low growth rate compared to the long-run average of 1.6%. This follows 0.2% supply growth in 2023 and a 1.7% change in 2022. However, It is likely that the 2022 increase was still slightly elevated by a combination of opening hotels that started construction pre-pandemic and reopening of some properties that were closed during the pandemic.

The total active pipeline, including all hotel rooms in planning, final planning, and construction, hit an all-time high of around 789,000 rooms in the last quarter of 2024. This total is an increase of 50,000 rooms, or 5%, from a year ago and a 160,000-room increase, or 26% jump, from two years ago.

The increase in hotel room counts in the planning (+25%) and final planning (+44%) stages over the last two years is substantial, but projects in these phases often do not have construction financing lined up. While the owners and developers usually arrange their equity stack before beginning their development process, the real test of viability comes when the construction and permanent debt need to be placed. In this “higher-for-longer” interest rate environment, coupled with lenders’ more stringent requirements for loan-to-value ratios, many hotel developers continue to wait on the sidelines for the capital markets to improve. That implies that the room counts in the earlier planning stages likely will remain “higher-for-longer” as well.

Looking ahead, the current CoStar supply forecast implies a moderate uptick in U.S. hotel openings in 2025, and supply is expected to rise by 0.9%. This supply change does not consider the possible implications of future tariffs or bottlenecks accessing to construction workers and materials. Industry participants who met in January at the Americas Lodging Investment Summit had both factors in mind but they may not materialize. Should immigration reform and tariffs negatively affect the construction industry, the supply change will likely be lower, and some hotel openings could be pushed into 2026.