Phoenix Has Fastest-Growing Hotel Inventory in Western US

Article originally posted on CoStar on June 21, 2023

Phoenix has the most hotel rooms under construction and the highest share of inventory growth in the Western United States, as favorable economic and demographic conditions, strong hotel performance and significant events such as the Super Bowl have contributed to increased interest in hotel developments in the area.

Nationally, Phoenix ranks second in the country in rooms under construction, trailing only New York. More than 5,000 hotel rooms are underway in the market as of mid-June, representing a 7.1% increase of existing inventory.

The Valley boasts a diversified and rapidly expanding economy that drives underlying space demand for nearly all types of commercial real estate, including hotels. Phoenix was among the fastest job markets in the nation to recover all positions lost during the pandemic, reaching pre-COVID employment levels in just 17 months compared to 28 months for the United States. Additionally, the local unemployment rate fell to the lowest level in nearly a quarter century in April 2023, and job creation has had steady momentum to start the year.

Perhaps Phoenix’s greatest asset is its demographics. Maricopa County was the fastest-growing county in the country for the third straight year and was a leader in net migration.

Many of the same drivers attracting an influx of new residents to Phoenix are also encouraging travel. The appealing climate, including 300 days of sunshine each year, draws residents and visitors seeking more temperate weather. Additionally, Phoenix offers outdoor recreation, premier events and numerous golf courses, as well as a deep inventory of luxury resorts and spas.

The Valley also has a thriving business environment with a strong labor force, lower regulatory burden and relative affordability. These factors have supported numerous corporate relocations and expansions across an array of industries. The most notable recent example was Taiwan Semiconductor Manufacturing Co., which is underway on one of two planned microchip fabrication units in North Phoenix. TSMC is investing an estimated $40 billion in the massive facility, representing one of the largest foreign direct investments in U.S. history.

Thriving tourism in Phoenix has benefited hotels. Phoenix attracts conventions and conferences, leisure visitors, corporate travelers and major tourism-driving events such as the Super Bowl, Major League Baseball’s spring Cactus League, the annual Waste Management Golf Tournament and the 2024 NCAA Men’s Final Four.

Phoenix has experienced the second-highest revenue per available hotel room, or RevPAR, growth among the top 25 markets in the U.S. compared to 2019, according to STR, CoStar’s hospitality analytics firm. Year-to-date through May, RevPAR was nearly 30% higher than in 2019.

The majority of hotel performance topline improvement was generated through higher hotel rates, which are almost $55 higher than in 2019 during the same period. Occupied hotel room nights, also known as hotel demand, began exceeding 2019 levels in 2022. However, due to the construction of new hotels, hotel occupancy is still slightly below 2019 levels.

Most of the hotels currently under construction are expected to open by the end of 2024. In the past five years, hotel inventory increased by nearly 4,200 rooms, representing a 6.2% growth.