Hotel developers are spending most of their money on lodging for higher-end guests and business travelers, thanks to a strong economy and the rising cost of labor and construction material.
Those are the conclusions from hospitality experts and a new hotel construction report that found 84% of all hotel projects under construction in the U.S. are for luxury, upper-scale and upper-midscale hotels.
The report by Lodging Econometrics of Portsmouth, N.H., said that only 12% of hotel projects under construction are for economy or midscale hotels.
The trend reflects optimism by developers that travel demand will continue to grow and that upper-scale guests and business travelers will spend heavily in the future, said Alan X. Reay, president of the Atlas Hospitality Group.
“We are seeing all the positive economic indicators,” he said. “I think there is a lot of optimism with the tax cuts and the economy.”
Reay said building an economy hotel no longer makes financial sense, considering the higher labor and material costs.
But budget-minded travelers still can find plenty of lodging through short-term rental sites such as Airbnb and at aging mid-scale hotels that are downgraded, he said.
“There will always be room for the budget traveler,” Reay said.
The Lodging Econometrics study found that hotel construction projects rose 4% in early 2018 compared to the same time last year. In the Los Angeles area, 12 hotel projects with up to 2,000 rooms are expected to be built this year, a 2% increase from the same time last year, according to the study.
To read more about the travel and tourism industries, follow @hugomartin on Twitter.