Why hotels are taking longer to build

Freitag said he did research up and down the chain scales, and not surprisingly, the delays get longer the higher up you go, with luxury hotels going from an average of 22 months in 2000 to 30 months today.

He said his research found there was “nowhere to hide” from delivery timeline delays. Still, the increases have been especially pronounced in the middle, with midscale and upper midscale hotel construction timelines seeing roughly 50% added to their delivery timelines, and economy properties trending close behind. Freitag said upscale and luxury also have lengthened construction duration, though by a smaller share.

Freitag's research suggests that many limited-service hotels have absorbed the largest proportional hit, even as luxury remains the slowest to deliver.

These delays are impacting developers' costs and, in turn, making new hotels riskier, as the extended timelines can lead to unforeseen and higher costs for investors. The time from groundbreaking to opening has stretched significantly while the hotel remains in the pipeline, especially in the last five years, as COVID disrupted supply chains and labor availability.

“The underlying trend just speaks to everything taking longer,” Freitag said in an interview with Hotel Investment Today. “Everything is a little bit more expensive, and everything takes a little bit longer than we originally thought.”

For instance, the rule of thumb was that for an economy-type property in a warmer climate that could support year-round construction, it would roughly take a year to build from start to finish. That year has now averaged 19 months. For full-service, upscale hotels, it used to take 24 months to build. That’s now turned into 27 months.

So, this all leads to the question of why this is happening. Freitag said the answers aren’t easy (nor are any readily available solutions), but he has some general ideas that should sound familiar.

The first is a labor shortage, which COVID certainly exacerbated, but Freitag said started way before that.

“After the great financial crisis (2008), when there was no real need, there was no demand for housing. My sense is, talking to people in the industry, that subcontractors from Latin America went back to Latin America because their services just weren’t needed,” he said. “Now we don’t have a lot of [subcontractors], electricians and so forth.”

Freitag said labor has been a stubborn bottleneck, with contractors reporting elevated wage pressures and persistent difficulty sourcing those qualified subcontractors. In addition, he noted turnover has further eroded productivity.

The other major factor is increased costs from many directions, with higher interest rates increasing the cost of construction loans, making delays more expensive, and requiring resequencing to manage draw schedules. Those higher inflation costs also show up in higher prices for construction materials, which have shortened bid-validity windows and pushed owners to pre-purchase long-lead items, adding more complexity and risk to project management.

Freitag said the tariffs issue didn’t even have time to appear in this research and could present future complications that further increase costs and timelines.

More complicated to build

Another factor is that hotel prototypes are much more complicated than they were 25 years ago, across all segments, from economy to midscale and upper-midscale hotels, where even standardized rooms can be challenging to build. Freitag also said that, according to industry participants, municipal review timelines, utility coordination and supply constraints on prefab components can erase the speed advantages these segments traditionally enjoyed.

“We talk about activating spaces and we talk about rooftops, and we talk about having more outlets, even in limited-service hotels,” he said. “Things have evolved, and that then means it takes longer to build.”

There are no places to hide. This elongation of the construction cycle hits all hotel classes, not evenly in terms of months, but evenly in terms of impact. It all takes longer than it used to.

Jan Freitag

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Even the boom in extended-stay hotels has complicated and extended construction timelines.

“You could argue that some of the lower-end, extended-stay hotels, the economy and midscale type of brands are more complicated to build because the room serves a couple of functions,” he said. “It’s not just a sleeping room, but also a living room and a kitchen. The room is just more complicated… and all of that just makes it more complicated, which then elongates the timeline.”

Looking ahead, Freitag said longer schedules will likely be a reality across all classes for the remainder of the decade, with limited-service hotels continuing to bear the biggest brunt of the delays.

“There are no places to hide,” he said. “This elongation of the construction cycle hits all hotel classes, not evenly in terms of months, but evenly in terms of impact. It all takes longer than it used to.”