The hotel industry is on a building spree, just as competition from nontraditional lodging like home rentals is heating up.
Fueled by low interest rates, developers are in the midst of a hotel-building boom, adding rooms around the world, including in some of the most crowded markets. Investors are also betting big on the industry. Chinese conglomerate HNA Group said Monday (Oct. 24) that it is buying 25% stake in Hilton Worldwide Holdings for about $6.5 billion, just months after it said it would Carlson Hotels, parent company of the Radisson chain.
Hotel industry newcomers include furniture retailer West Elm and designer Karl Lagerfeld, a sign that businesses that have spent decades selling physical goods are paying close attention to changing consumer preference for experiences like travel over objects.
There were 3,521 hotel properties under construction in September 2016, up from 3,093 at the same point last year, according to hotel-industry research firm STR.
Both the number of hotel rooms available and the number of rooms in the construction phase rose in 2016 compared to the previous year; the world’s stock of rooms rose nearly 2% to 16.3 million total.
While the pipeline is thinner than it was in the years leading up to the 2008 financial crisis, growth in planned rooms has accelerated over the last three years in the US.
But with so many new short-stay properties available worldwide, it’s a guest’s market. Travelers can likely count on little increase in nightly rates, if any, from traditional hotels as they try to fend off traditional competitors as well as home-and-holiday rental companies like Airbnb and HomeAway that are moving onto their turf in the business travel and vacation markets.
Occupancy was flat in US hotels in the third quarter, an important period that includes summer holidays, according to STR. Given that backdrop, the new supply will be especially good for guests’ wallets.
“New hotels charge less” to get new guests in the door, says Michael Bellisario, an analyst at investment firm RW Baird.
The number of rooms under construction in Seattle nearly quadrupled from September 2016 to 2015, while construction rose more than 28% and 45% in New York and Los Angeles, two of the biggest markets in the US.
Perhaps now, and once and for all, the minibar should be free.