Hotel developers look at changes in population by market as an indicator of potential demand and development opportunities, and CoStar data suggests there's a positive relationship between population increases and hotel supply growth.
Between 2015 and 2020, the supply of hotel rooms in the U.S. grew by 2.7%. At the same time, the U.S. population increased by 3.4%. The increase in room supply over the five years ended in 2020 was overshadowed by a sharp 3.6% decline in available rooms between 2019 and 2020 when the pandemic struck, largely driven by temporarily closed hotels. As those properties reopened, the room supply data normalized. In the five years ending with 2021, hotel room supply grew by 6%.
Across the 384 metropolitan areas where hotel data is available, a 10% average increase in population was accompanied by a 6% increase in room count.
While the relationship between an increase in population and rooms is positive, the impact of population changes within specific markets can vary widely. Many of the fast-growing markets in Texas and Florida show double-digit room growth driven by rapid population gains. Hotel development growth mirrors the national average of roughly a 6% supply increase for each 10% increase in population.
On the other hand, the two largest states on each coast, New York and California, were undergoing population changes even before the pandemic. In these two states, many markets were experiencing declines in population. Hotel developers took note, resulting in only a 2% increase in hotel rooms in those two states.
One additional metric that can be useful to assess if a market is seeing above- or below-average supply in hotel rooms is the calculation of rooms per 10,000 residents. On average, major metropolitan areas offer 155 rooms per 10,000 inhabitants. However, this number can vary widely, especially in vacation destinations.
In leisure-oriented markets such as the ones listed in the chart above, the number of residents and population growth are not the primary drivers of demand. Instead, their strong appeal for leisure travelers makes these areas prime development targets for hotels.
The room count per resident in the largest hotel markets in the U.S. is much more akin to the national average. These markets have large populations, and their room demand is more evenly balanced among leisure, group and transient travelers.
The strong rebound in leisure travel has largely fueled the U.S. hotel industry. Leisure destinations have traditionally seen stronger increases in room counts than would generally be expected based on their population, a trend that is likely to continue. As a result, the ongoing shift in population and migration patterns to Sun Belt states is expected to be accompanied by a higher level of hotel development.