Analysis by Isaac Collazo
U.S. hotel conversion activity, which involves changing an existing hotel from its independent status, or affiliating it with a new brand; continues to trend below the long-term average of the 20-year period ending 2019. We are benchmarking to this period given that it excludes the disruption in hotel development brought about by the pandemic
As of October 2024 year to date, 1,103 hotels went through a conversion. That total was up from 1,000 hotels at this time last year but below the 20-year average of 1,424. Of the hotels to make a switch this year, the largest change was with properties that went from branded to independent (391 properties) followed by hotels that have switched to a brand of another parent company (333 properties). Additionally, 251 hotels converted from independent to a brand, while 128 changed brands but remained with the same parent company. Of the total hotels open and operating, 1.7% have changed brands this year as compared to the long-term average of 2.4%.
The largest deficit to the long-term average are among hotels converting from a brand to independent and vise-versa. On average over the past three years, 250 less hotels per year have made that change. Prior to the pandemic, an average of 504 hotels converted annually from a brand to independent and another 399 did the opposite, from independent to a brand.
Forty-six percent of the hotels that have changed brands this year went down the scale with 35% becoming independent. However, 36% of hotels moved to a higher chain scale with the largest majority (22%) becoming Economy or Midscale brands, with most formally independent. Only 15% of this year’s conversions are from a lower-tier brand to Upper Midscale or higher affiliation. Furthermore, 18% of hotel conversions remained in the same chain scale. All of these percentages are in line with long-term averages.
Of the hotels that have changed brands in 2024, 23% did so for the first time since their opening with a quarter of those hotels going from a brand to independent. Continuing our review, 19% of the hotels that have converted in 2024 did so for the second time since their opening, with another 18% seeing their third conversion and 17% completing a fourth conversion. Like the percentage of hotels that completed their first conversion, 23% have converted five or more times.
Among hotels that were closed, 307 have reopened this year so far. Of those hotels, the largest number (224) reopened as the same brand with the remainder switching to a different brand or becoming independent.
Since the beginning of the year, 564 new hotels have opened, which is the most since 2021 (819) but well below the long-term average (797).
The largest deficit in openings is among the Upper Midscale segment, which still leads openings, accounting for 30% of all new hotels. Independent hotels make up the next largest percentage (18%) followed by Upscale (16%).
Closures continue to be elevated with 742 hotels closed in 2024. The vast majority (68%) were independent properties with former economy hotels the next largest group (12%). We can verify that 475 of the 742 are permanently closed, while 71 have notified STR that they are closed for renovation, which means that nearly 200 hotels could return to the industry. In any case, the number of 2024 permanent hotel closures is above last year but below what was seen in 2022 (668) and in 2005 (688).
Conversion activity remains relatively muted versus what has been seen in previous years. With new construction held back by higher interest rates and construction costs, we anticipated that more hotels would be converted, especially from the independent stock, but that hasn’t happened. It’s likely that available independent hotels are simply not suitable for conversion either due to age, location or many other factors. Thus, the trend we are seeing of less independent hotels converting to a brand may be the new normal.