A record share of the rooms opening around the world this year never broke ground — they changed a sign instead. That shift moves the payback clock, the competitive set, and the brand-affiliation decision onto a very different timeline for the executives managing what happens next.
Hotel brand conversions and major renovations outnumbered ground-up construction activity across most major markets in 2025, though the newest data shows this is not a one-way climb. In the United States, renovation and conversion projects in the pipeline closed 2025 at a combined record of 2,118 projects and 278,628 rooms, according to Lodging Econometrics — before easing back to 2,041 projects and 258,665 rooms in the first quarter of 2026, with conversions specifically slipping to 1,461 projects and 141,971 rooms from the Q4 2025 peak of 1,497 and 148,981 (Lodging Econometrics, Q4 2025 and Q1 2026 U.S. Hotel Construction Pipeline Trend Reports). Europe moved differently over the same stretch: combined renovations and conversions there reached a fresh high of 700 projects and 90,066 rooms at the close of 2025, and the region’s total pipeline grew again into the first quarter of 2026 (Lodging Econometrics, Q4 2025 Europe Hotel Construction Pipeline Trend Report, February 2026). For a GM watching a tired independent three blocks away reopen under a global flag within months, or a DOSM budgeting against a competitive set that’s about to gain a loyalty program and a revenue-management system overnight, the live question isn’t whether this has been happening. It’s whether a quarter like the one the U.S. just posted is noise, or an early sign that the preference for conversions is more tied to financing conditions than anyone building a multi-year plan around it would like.
Table of Contents
1. The Pipeline Tipped Toward Conversions — Then Eased
Lodging Econometrics tracks hotel development in three ways: new-build projects moving through planning and construction, brand conversions (an existing hotel changing flags), and renovations (a hotel staying under its current flag but undergoing substantial capital work). The U.S. pipeline closed 2025 at 6,146 projects and 720,089 rooms, with conversions alone hitting a record 1,497 projects and 148,981 rooms — up 12% in projects and 16% in rooms year over year — and renovations adding another 621 projects and 129,647 rooms (Lodging Econometrics, Q4 2025 U.S. Hotel Construction Pipeline Trend Report, January 2026). By the close of the first quarter of 2026, the total pipeline had eased to 6,020 projects and 705,825 rooms — down roughly 5% year over year — and conversions had pulled back to 1,461 projects and 141,971 rooms: still up 3% in projects and 4% in rooms against Q1 2025, but below the Q4 2025 peak (Lodging Econometrics, Q1 2026 U.S. Hotel Construction Pipeline Trend Report, April 2026). CoStar’s separate tracking of rooms physically under construction showed a year-over-year decline for a 15th consecutive month through March 2026 data — a different provider and methodology, but pointing the same direction (CoStar/STR, “U.S. Hotel Construction Down for 15 Consecutive Months,” April 29, 2026).
U.S. Hotel Construction Pipeline: Q4 2025 vs. Q1 2026
| Category | Q4 2025 | Q1 2026 |
| Total U.S. pipeline | 6,146 projects / 720,089 rooms | 6,020 projects / 705,825 rooms |
| Under construction | 1,088 / 134,380 | 1,071 / 132,016 |
| Scheduled to start within 12 months | 2,175 / 253,750 | 2,164 / 249,465 |
| Early planning | 2,883 / 331,959 | 2,785 / 324,344 |
| Brand conversions | 1,497 / 148,981 — record high; +12%/+16% YoY | 1,461 / 141,971 — +3%/+4% YoY vs. Q1 2025, below Q4 2025 peak |
| Combined conversions + renovations | 2,118 / 278,628 — record high | 2,041 / 258,665 |
| Luxury segment (the exception) | 95 / 22,045 — record high | 102 / 25,527 — record high; +16%/+23% YoY |
Conversions and renovations are project types that cut across the stage categories above, not an additional stage — they are not additive to the total pipeline figures. Sources: Lodging Econometrics, Q4 2025 U.S. Hotel Construction Pipeline Trend Report, January 2026 and Q1 2026 U.S. Hotel Construction Pipeline Trend Report, April 2026.
For an operator, the consequence lands squarely on competitive-supply forecasting. A ground-up hotel gives the comp set eighteen months or more of visible warning — a crane, a permit filing, a groundbreaking party. A conversion can go from signed franchise agreement to open doors in a single quarter. That compresses the lead time a revenue manager has to model a new competitor into next year’s RevPAR and rate-shopping strategy, even though total room count in a market may be rising more slowly than headline pipeline figures suggest, since a converted hotel was already selling rooms under its old name.
What’s worth watching is exactly what just happened. Lodging Econometrics attributed the Q1 2026 pullback to two distinct forces: a pull-forward of openings ahead of the 2026 FIFA World Cup, and the cost of debt through 2025, which the firm said made it infeasible for many owners to sign new project agreements at all — conversions included, not only new builds (Bruce Ford, senior vice president, Lodging Econometrics, quoted in Hotel Dive, “US Hotel Construction Pipeline Down Roughly 5% YOY in Q1 2026,” April 28, 2026). That the conversion pipeline eased in step with the rest of development activity, rather than absorbing its slack, is itself a data point in the structural-versus-cyclical question this piece returns to at the end. Luxury remains the one segment behaving differently throughout: the U.S. luxury pipeline reached a fresh record of 102 projects and 25,527 rooms in the first quarter of 2026, up 16% in projects and 23% in rooms year over year — the only chain scale where ground-up activity kept accelerating through the same stretch (Lodging Econometrics, Q1 2026 U.S. Hotel Construction Pipeline Trend Report, April 2026).
2. Why the Payback Clock Runs Faster Without a Permit
The cost side of this is not a single dramatic number so much as several compounding ones. The Turner Building Cost Index — which tracks non-residential construction costs in the U.S. — rose 8.0% in 2022 and 6.0% in 2023 before decelerating to 3.32% in 2024 and 3.57% on a trailing-twelve-month basis through March 2025 (HVS, U.S. Hotel Development Cost Survey 2025, July 2025). More recently, Associated Builders and Contractors data showed nonresidential construction input prices rising at a 12.6% annualized rate in the first two months of 2026, the fastest pace since the 2022 supply-chain disruptions, while the Engineering News-Record Building Cost Index rose 4.2% for 2025 with structural steel up 11.9% (reported in Tax Credit Advisor, “2026 U.S. Construction Cost Outlook — Q2 Update,” April 16, 2026). On the hotel-specific labor line, wages per occupied room rose from $45.41 in the fourth quarter of 2024 to $54.98 in the same quarter of 2025 — a 21.1% jump — with full-year 2025 cost-per-occupied-room up 12.8% and general manager hourly wages up 6.2% (Actabl/HotelData.com, Q4 2025 Profit and Labor Costs Report, March 12, 2026). Layer on financing: the effective federal funds rate sat in a 3.50%–3.75% target range as of the second quarter of 2026, after three cuts in late 2025 and two subsequent holds (Tax Credit Advisor, “2026 U.S. Construction Cost Outlook — Q2 Update,” April 16, 2026).
None of that, by itself, tells an owner how much faster a conversion pays back than a new build — but Choice Hotels has put a number on it. In its own investor materials, the company states that conversions typically open within three to six months, “approximately 80% faster than new construction,” and that they run roughly 1.7 times more accretive than the base portfolio (Choice Hotels International, Q3 2025 Supplemental Earnings Presentation, SEC Form 8-K Exhibit 99.2, November 2025). The same filing shows conversions making up only 35% of Choice’s pipeline by room count against 65% for new builds — yet the company guided that conversions would deliver roughly 80% of its 2025 hotel openings, precisely because they move through the pipeline so much faster once signed.
The P&L line this touches is the time value of the first dollar: months of carrying cost and interest during construction that a conversion largely skips, and — for the franchisor — months of royalty and system-fee revenue collected earlier rather than later. What isn’t yet quantifiable market-wide is how much of that speed premium survives if financing eases; it may simply be a function of skipping the queue for scarce skilled trades, which is a persistent constraint (roughly 439,000 additional construction workers were needed industry-wide in 2025, with close to 500,000 projected for 2026, and 94% of contractors reporting difficulty filling positions) rather than a permanent structural advantage (reported in Tax Credit Advisor, “2026 U.S. Construction Cost Outlook,” January 21, 2026). Worth watching is whether that labor bottleneck — which touches conversions too, just in smaller doses — keeps a floor under the speed premium even after rates fall.
3. A Franchise Flag for Almost Any Existing Address
Every major franchisor has spent the past several years building a brand specifically to catch independent hotels rather than new construction. IHG’s Noted Collection, launched alongside its full-year 2025 results, is the company’s 21st brand and its eleventh new launch in as many years, aimed at a pool the company estimates at more than 2.3 million independent rooms globally in the upscale and upper-upscale tiers (IHG Hotels & Resorts, Full Year Results to 31 December 2025, February 17, 2026). Marriott runs the same play through Autograph Collection, The Luxury Collection and Tribute Portfolio; Hilton through Curio Collection and LXR; Accor through MGallery, Emblems and the Handwritten Collection. The pitch to an owner is consistent across brands: keep the building and the identity, take the distribution and loyalty system.
The result shows up plainly in company-reported growth. Marriott said conversions contributed about one-third of its organic room signings and gross room additions in 2025 (Marriott International, Fourth Quarter and Full Year 2025 Results, February 2026). IHG reported that conversions made up 52% of all room openings and 40% of all room signings globally in 2025 (IHG Hotels & Resorts, Full Year Results to 31 December 2025, February 17, 2026).
Conversion Share of Gross Openings/Signings, FY2025, by Franchisor
| Company | Conversion share | Source |
| Marriott International | ~33% of organic room signings and gross room additions | Marriott Q4/FY2025 earnings release |
| IHG Hotels & Resorts | 52% of room openings; 40% of room signings | IHG Full Year 2025 Results |
| Choice Hotels International | ~80% of 2025 openings guided from conversions | Choice Hotels Q3 2025 supplemental (SEC Form 8-K) |
Each figure is drawn from that company’s own disclosed results and is not directly comparable across firms, since definitions of “conversion” and reporting periods vary.
For an owner sitting on a dated but structurally sound building, this proliferation is genuine negotiating leverage: multiple brands are competing for the same signature, which affects royalty rates and, more importantly, the property-improvement-plan requirements attached to the deal. For the operator on the other side of the comp set, the consequence is that competitive supply can now arrive pre-loaded with a global loyalty program and revenue-management infrastructure from day one — a materially sharper threat than a slow-ramping new build with no brand recognition. What’s worth watching is brand dilution: with IHG alone now running 21 brands and its peers running comparably large portfolios, the differentiation a guest actually perceives between soft brands narrows, and PIP costs on an older building can still be substantial enough to erode the headline speed advantage — a property-by-property diligence question rather than a category-wide given.
4. Faster Openings Aren’t the Same as Faster Demand
The growth figures above sit next to a demand picture that isn’t accelerating at the same pace. Wyndham reported record openings of 72,000 rooms in 2025 — its largest organic expansion ever — while its global RevPAR fell 3% for the full year and 6% in the fourth quarter alone, with the U.S. RevPAR decline reaching 8% in that quarter (Wyndham Hotels & Resorts, Q4 2025 Earnings Call Transcript, February 20, 2026). Wyndham’s pipeline does carry a fee-par premium — about 30% above the existing system domestically and roughly 20% internationally — meaning the rooms being added are expected to generate materially higher franchise fees per room than the existing base, even in a soft RevPAR environment (Wyndham Hotels & Resorts, Q4 2025 Earnings Call Transcript, February 20, 2026). Industry-wide, gross operating profit per available room sat at roughly 90% of 2019 levels through 2025, with rising operating expenses cited as the primary drag (AHLA, 2026 State of the Industry, January 27, 2026). Global travel demand itself was healthy — 1.52 billion international arrivals in 2025, up 4% year over year and 6% above 2019 levels for Europe specifically (UN Tourism, World Tourism Barometer, January 2026) — but that demand growth has not proportionally outpaced the room supply being added through conversions.
The commercial consequence is that a converted competitor is genuine new supply competing for the same guests, regardless of whether a permit was ever filed. Occupancy and RevPAR exposure for existing operators doesn’t shrink just because the new entrant skipped construction; if anything, a conversion arrives with less warning and a stronger initial distribution advantage than a slow-ramping new build. What’s worth watching is churn on the other side of the ledger: Choice Hotels’ own commentary notes that its churn rate — hotels exiting the system — should return to a historical 3–4% range after an outsized round of 2025 exits of lower-performing properties, a reminder that gross opening counts overstate net system growth, and by extension, net new competitive pressure (Choice Hotels International, Q4 2025 Earnings Call Summary, February 19, 2026).
5. Whether the Preference Survives Cheaper Debt
This is where hotel executives actually disagree. IHG’s own leadership has framed the shift in explicitly permanent terms: in 2025, conversions accounted for 52% of the company’s global room openings and 40% of signings, and management has described this as “not a short-lived cycle or trend, but a fundamental re-shaping” of how the industry grows, pointing to Garner — an IHG conversion brand that reached 100 open and pipeline hotels in roughly three years — as evidence the model scales quickly once lenders and owners are comfortable with it (reported in Premier Construction News, “What It Takes to Win in Brand Conversions for the Long Run,” July 7, 2026; IHG Hotels & Resorts, Full Year Results to 31 December 2025, February 17, 2026).
Other voices in the same conversations are less certain the preference is permanent. Development chiefs surveyed across six major companies at the start of 2026 largely repeated what they’d said a year earlier — that conversions remain the leading growth opportunity precisely because significant rate cuts never materialized, and that further reductions, if they come, wouldn’t reset the market back to late-2010s new-build levels overnight, but would meaningfully shift the calculus over time (Hotel Dive, “C-Suite Leaders Forecast the Top Hotel Development Trends of 2026,” January 14, 2026). HVS advisors have separately noted that the current environment — depressed competition for contractors, moderating cost inflation — is also creating a window for developers with capital to begin predevelopment work on new builds now, positioning them to deliver into a less saturated pipeline once financing conditions ease (HVS, U.S. Hotel Development Cost Survey 2025, July 2025). Luxury’s continued new-build strength is the closest thing to a natural control group: it’s the one chain scale where ground-up construction kept setting records through the same period conversions did everywhere else.
The clearest live test of these competing views sits in the U.S. data already covered above. Lodging Econometrics split its explanation for the Q1 2026 pullback along both lines at once — part mechanical (projects finishing early to open ahead of the World Cup), part financing (the cost of debt through 2025, which the firm said kept owners from signing new agreements altogether, conversions included) (Bruce Ford, quoted in Hotel Dive, “US Hotel Construction Pipeline Down Roughly 5% YOY in Q1 2026,” April 28, 2026). A February 2026 JLL report cited in the same coverage expects debt markets to improve through the year — the kind of shift that would offer a fairer read on whether conversions hold their edge once new-build financing becomes viable again, or whether growth simply reallocates back toward ground-up once it does (reported in Hotel Dive, “US Hotel Construction Pipeline Down Roughly 5% YOY in Q1 2026,” April 28, 2026). That the conversion pipeline eased alongside the rest of development activity, rather than picking up its slack, is suggestive rather than conclusive — precisely the kind of evidence this debate hasn’t yet settled.
For an executive weighing a multi-year brand affiliation or a development pipeline built around conversion economics, the practical consequence is that the bet is not risk-free in either direction. If the preference is genuinely structural, as IHG argues, owners who committed early to conversion-friendly brands hold a durable advantage in speed to revenue and lender comfort. If it is instead a detour that snaps back once the Federal Reserve cuts further, the new-build supply currently held back by cost and financing could arrive in a compressed window, changing the competitive-supply math faster than pipeline data alone would suggest today. What’s worth watching from here is less any single company’s guidance and more two threads together: the Fed’s rate path against the still-declining rooms-under-construction trendline, and whether luxury new-build stays the exception, or becomes the leading edge of a broader reversal.
Data Source
- Lodging Econometrics, Q4 2025 U.S. Hotel Construction Pipeline Trend Report, January 2026. Quarterly tracking of the full U.S. hotel development pipeline by stage and project type, covering 6,146 projects nationwide.
- Lodging Econometrics, Q1 2026 U.S. Hotel Construction Pipeline Trend Report, April 2026. The following quarter’s pipeline report, covering 6,020 projects, used here to show the sequential change from the Q4 2025 figures above.
- Lodging Econometrics, Q4 2025 Europe Hotel Construction Pipeline Trend Report, February 2026. Quarterly tracking of the European hotel development pipeline, covering 1,717 projects across the region.
- Hotel Dive, “US Hotel Construction Pipeline Down Roughly 5% YOY in Q1 2026,” April 28, 2026. Trade-press coverage of the Q1 2026 pipeline report, including on-record comment from Lodging Econometrics on the drivers of the pullback and a reference to February 2026 JLL debt-market commentary.
- CoStar/STR, “U.S. Hotel Construction Down for 15 Consecutive Months,” April 29, 2026. Monthly STR data on U.S. hotel rooms physically under construction.
- CoStar/STR, “Hotel Pipeline Expands in Europe as All Other Regions Decline,” October 22, 2025. Quarterly global pipeline comparison by region based on CoStar data.
- HVS, U.S. Hotel Development Cost Survey 2025, July 17, 2025. Annual hospitality advisory survey tracking construction cost indices and hotel supply growth forecasts.
- Tax Credit Advisor, “2026 U.S. Construction Cost Outlook — Q2 Update,” April 16, 2026. Industry outlook citing Associated Builders and Contractors and Engineering News-Record cost-index data.
- Actabl/HotelData.com, Q4 2025 Profit and Labor Costs Report, March 12, 2026. Hospitality analytics report on wage cost per occupied room and GOP margin across the U.S. hotel sector.
- AHLA, 2026 State of the Industry, January 27, 2026. Annual industry performance and outlook report from the American Hotel & Lodging Association.
- UN Tourism, World Tourism Barometer, January 2026. Global tourism arrivals and receipts data covering full-year 2025. Marriott International, Fourth Quarter and Full Year 2025 Results, February 2026. Official earnings release filed with the SEC.
- IHG Hotels & Resorts, Full Year Results to 31 December 2025, February 17, 2026. Official earnings release and investor materials.
- Choice Hotels International, Q3 2025 Supplemental Earnings Presentation, SEC Form 8-K Exhibit 99.2, November 2025. Investor presentation filed with the SEC.
- Choice Hotels International, Q4 2025 Earnings Call Summary, February 19, 2026. Summary of company commentary from the Q4 2025 earnings call.
- Wyndham Hotels & Resorts, Q4 2025 Earnings Call Transcript, February 20, 2026. Official earnings call transcript.
- Premier Construction News, “What It Takes to Win in Brand Conversions for the Long Run,” July 7, 2026. Industry commentary citing IHG’s reported conversion figures and strategic framing.
- Hotel Dive, “C-Suite Leaders Forecast the Top Hotel Development Trends of 2026,” January 14, 2026. Trade-press interviews with development leaders at Marriott, Hilton, Wyndham, IHG, Choice and Hyatt.
