Dive Brief:
- Hotel brands will lean on conversions, partnerships and M&A to stimulate net unit growth in the short-to-medium term, JLL said in a report obtained by Hotel Dive.
- JLL anticipates the growth in hotel conversions will continue into 2025, with more conversion-only brands like Spark by Hilton entering the market.
- Elevated interest rates and higher materials costs have partially curbed new hotel construction, spurring brands to invest in conversions, which are more cost- and time-effective than new builds.
Dive Insight:
New hotel supply and construction has been limited due to elevated interest rates and higher construction costs, combined with supply chain disruptions.
JLL reports that global hotel room supply increased by only 3.4% as of year-end 2023, which is 140 basis points slower than the growth recorded in 2019.
Construction activity in Europe, the Middle East and Africa has seen the most significant deceleration relative to 2019, dropping by 230 basis points, followed by the Americas at 160 basis points. The impact is less pronounced in the Middle East and Greater China due to disparities in hotel construction and financing costs, according to JLL.
With the cost to build significantly higher than the cost to buy in most markets, the number of conversions surged to an all-time high in 2023. According to Lodging Econometrics’ 2023 year-end U.S. Construction Pipeline Trend Report, the U.S. hotel construction pipeline hit a record high of 5,964 projects, or 693,963 rooms, in the fourth quarter of last year, with hotel conversions and renovations combining for a record 2,028 projects, or 303,330 rooms.
Conversions accounted for 25% of Marriott’s room openings in 2023, helping to drive growth. The brand signed a record 184 conversion properties, representing almost 65,000 rooms.
Lodging Econometrics SVP Bruce Ford previously told Hotel Dive that the hotel conversion pipeline had reached “historic levels,” with the trend likely to continue into 2025. That’s because conversions have become a key way for brands to fuel their net unit growth, which accounts for 50% of shareholder value, according to JLL.
The growth has led to the emergence of conversion-only brands, such as Spark by Hilton, launched last year, and conversions from other asset types, such as office spaces, JLL said.
Additionally, hotel companies have pursued growth through mergers, acquisitions and partnerships — such as Hilton's acquisition of Graduate Hotels and Marriott’s partnership with MGM.
