Monday, July 21, 2025

The number of hotels under construction in the United States is now at the lowest point in 20 quarters, new statistics from CoStar show. This downturn in hotel construction, now down six straight months, is quite the change of pace from a year earlier. Hotels face a compendium of headwinds in the form of weakened hotel demand, rising construction costs and continued economic uncertainty. The pipeline of new hotel projects around the country is being scaled back.

The number of new hotel rooms under construction is down nearly 12 percent, compared to the same time a year ago, according to CoStar data. This is the longest period since hotels construction activity went into a sustained downturn, which doesn’t bode well for the industry going forward. The increase mirrors broader economic woes, as inflation soars and global supply chain issues continue, which both serve to push up the cost of building materials and labour.

Impact of Economic Uncertainty on Hotel Construction

Economic uncertainty has been central to the weakness in hotel construction. Real esate owners are taking in more risks as the volatility of economic conditions has had an adverse impact on stability of the hospitality market. Amid those economic headwinds, the global pandemic and its aftermath poured across travel demand and the broader economy.

Many hotel developers are also grappling with the fact that credit has become more expensive so that they can no longer secure loans for new hotel projects with the ease that they did before. The Federal Reserve’s rate hikes in reaction to inflation have also curtailed hotel developers’ confidence to forge ahead with massive building booms, CoStar reports.

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Moreover, escalating construction costs led by labor scarcity and price hikes for materials have also been dissuading lodging investors from investing in new hotel rooms. Developers are having difficulty completing projects on budget, with projects being delayed, scrubbed or scaled back.

Regional Trends: Southern U.S. Dominates Hotel Development

Hotel construction is decreasing overall, but the Southern U.S. is the strongest region for new hotel projects. A lot of that new hotel construction is in secondary and tertiary markets, indicating a retreat from major cities. The Southern U.S. is currently leading new hotel supply, sources has reported, citing CoStar.

Strong local economies, consistent tourism and increasing business travel mean cities like Dallas, Houston and Atlanta are witnessing strong hotel development. Another factor is the population of these towns is swelling as people are moving to the area in search of cheaper living options. While the trend of businesses relocating to these regions persists, hotels in secondary and tertiary markets are likely to benefit from this development.

Factors Contributing to the Decline in Hotel Construction

Several factors are contributing to the ongoing decline in hotel start-ups. Key issues Inhibiting the process of Progress.

· Lower hotel demand: With volatile travel habits in times of economic uncertainty, demand for hotel rooms has been uneven. While some regions are seeing high occupancy, the demand for travel has not bounced back particularly to pre-pandemic levels, and that has builders of hotels cautiously optimistic.

· Ongoing economic uncertainty: Ongoing global economic volatility has led to uncertainty surrounding the future profitably of new hotel investments. The industry is also sensitive to changes in economic factors such as inflation, interest rates and consumer spending.

· Growing cost of construction: As labor and construction materials become more expensive, developers struggle to stay on time and budget on new home projects. With costs on the rise, new hotel construction is being hindered because buildings are much more specific while much less friendly to a shoddy result.

JD Power’s 2025 Hotel Guest Satisfaction Index

While hotel construction slows, the industry is finding new ways to evaluate and enhance guest satisfaction. JD Power’s 2025 Hotel Guest Satisfaction Index for North America named top chain scale winners for many segments of the hotel industry. Winning the Luxury category was The Ritz-Carlton, while in the Upper-Upscale category it was Omni Hotels & Resorts. Other winners were Drury Hotels, which was No. 1 in the Upscale category, and Hyatt House, which earned first place in the Upscale Extended Stay category for a fourth straight year.

Key Hotel Developments Amid Construction Slowdown

Although the overall hotel construction market continues to decelerate, there are a few notable trends:

· Portman Holdings will develop the new Marriott Convention Center Hotel in Cincinnati south of the Duke Energy Convention Center. The Marriott is scheduled to open in 2028 with 700 rooms, over 62,000 square feet of meeting space and a 17,445-sguare foot events terrace.

· The REMI Scottsdale in Arizona, an Autograph Collection property, is scheduled to begin accepting guests in July 2025. The hotel will also have five dining venues selected by Alliance Hospitality Group.

· TownePlace Suites by Marriott has debuted a new extended stay hotel in Bozeman, Montana. The hotel has 107 suites, and a bar and restaurant.

While the pace of construction has cooled, it is clear that interest remains strong in growing the hotel market in specific areas, particularly those with a strong focus on conventions and tourism.

Outlook for U.S. Hotel Construction

On the horizon, the future of hotel development in the U.S. is somewhat murky amid higher construction costs and economic uncertainty for builders. However, Perhaps the market’s long-term potential is bolstered by consistently solid demand in markets such as the South and certain urban markets as well as the increasing emphasis on hotel renovations and repositioning of existing hotels.

The new hotel development slowdown may also lead to more investment in refurbishments and updates to entice current hotel owners to remain competitive and understand their position as they await the storm to pass.

(Source: CoStar, JD Power’s 2025 Hotel Guest Satisfaction Index)

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Tags: CoStar report, Economic Trends, economic uncertainty, hotel construction, hotel demand, Hotel Development, Hotel Development Trends, Hotel Industry Trends, hotel market decline, Southern U.S., U.S. hotel construction, United States