Why the pandemic’s construction freeze created a generational opportunity and how the projects we built during it are now reaping the rewards.
The hospitality industry has never received a stranger gift than the COVID-19 pandemic. For the owners and developers who survived those years and kept building when others couldn’t, the reward is now playing out in real time. We are operating in one of the most supply-constrained hotel markets in modern history, and the assets that came online during that drought are generating performance metrics that would have seemed optimistic even in the best pre-pandemic projections.
Let me put some numbers on what we’re experiencing.
- $4.9T Global hospitality market size in 2024
- 43.9% U.S. hotel occupancy at the pandemic floor in 2020
- ~63%U.S. occupancy by 2023–24, a robust rebound
A Market That Forgot How to Build
Between 2020 and 2024, new hotel supply growth in the United States effectively ground to a halt. Total U.S. hotel supply fell by roughly 4% in 2020 alone, driven by closures and halted construction. In 2023, net supply grew by just 0.2%. In 2024, it rose to 0.5%. These are historically low figures for a market that, in the five years before the pandemic, averaged 5% annual growth in its development cost index.
For context: the U.S. construction pipeline peaked at about 214,000 rooms under development in 2020. By early 2025, that figure had settled within a range of 150,000–160,000 rooms and stayed essentially flat for nearly 39 consecutive months. Projects simply weren’t getting started. Financing dried up, lenders pulled back, and construction costs surged; the development cost index rose 8% in 2022 and 6% in 2023, creating a brutal squeeze for anyone trying to underwrite a new build.
“The developers who kept moving, secured financing, managed costs, and delivered rooms to a market starved of new supply now hold an extraordinary competitive position.”
The irony is that hotel operating performance has been exceptionally strong precisely because so little supply came to market. Average Daily Rate (ADR) across the U.S. reached $158.67 at year-end 2023, an all-time high. RevPAR continued its upward trajectory, with primary markets, the top 25 U.S. cities, recording a 2.7% RevPAR increase in 2024 versus 2023. Hotels that opened in this environment didn’t face the traditional headwind of competing with a flood of new keys down the street. The runway was clear.
How the Pipeline Drought Benefits New Entrants
At LRE & Co, we’ve seen this dynamic play out directly in our portfolio. Projects completed between 2022 and 2025 have entered markets where meaningful new competition is years away. When you open a hotel in an undersupplied market, particularly in the upper-midscale and upscale segments, which have historically dominated the active pipeline, you’re not fighting for share. You’re capturing it.
The data supports the thesis. PwC’s Hospitality Directions report notes that luxury hotels are set to see the strongest supply growth across segments in 2025, while economy supply is expected to remain flat. That bifurcation creates distinct opportunity windows depending on a developer’s position. Meanwhile, RevPAR is forecast to increase by 1.5% in 2025, and after a prolonged slowdown, project financing is beginning to reanimate, particularly in high-growth secondary markets, where our team has been strategically focused.
- 0.5% U.S. net hotel supply growth in 2024 — near historic lows
- $157.50 U.S. ADR through mid-2024, up 1.8% year-over-year
- +45% European hotel transaction volume growth in 2024 vs. 2023
The Road Ahead: Constrained Supply, Growing Demand
The global picture reinforces domestic trends. European hotel transaction volumes reached €21 billion in 2024, the strongest year since the pandemic and a 45% increase over the prior year. The World Travel & Tourism Council projected that the sector’s global economic contribution reached an all-time high of $11.1 trillion in 2024, representing approximately 10% of global GDP. Demand, in short, has recovered. Supply has not kept pace.
This is the environment in which LRE & Co continues to operate. We are disciplined about capital allocation, selective about the markets and segments we enter, and deliberate about timing. The pandemic forced a brutal reset on the development community, but for operators and owners who navigated it with patience and financial discipline, the result is a pipeline of assets entering a market where supply scarcity is, for now, a structural advantage.
The hotels we built when nobody else could are the ones generating the returns that matter. As financing slowly reactivates and new projects resume, the window remains open. The question is who moves with conviction and who waits for the moment to pass.