In this analysis, we will direct our attention to the chain scales and the top 25 markets and how the nature of supply growth will affect these segments and what that will mean for the short- and long-term evolution of the U.S. lodging industry.

Chain scale 12 month moving average–supply index (Jan. 2000=100) Jan. 2000–April 2007
Currently, there are more rooms in all phases of the construction pipeline than there have been at any time since the late 1990s. There are three reasons why I don't believe the existing levels of new construction will negatively affect overall lodging performance. First, the new rooms under construction are very well balanced by property type and geography. The new supply is concentrated in the chain scale segments that are performing the best from an occupancy and average room rate perspective. Also, the growth planned in the other segments is proportionate, based on share of total supply.

Total United States rooms under construction by scale in thousands April 2007
Taking this a step further, the planned new supply also is balanced between the top 25 markets and the rest of the country. Just over 30 percent of new construction is in the top 25 markets, which means the majority of growth is in the secondary and rural markets. This is important because about 42 percent of all dollars spent purchasing hotel rooms happen in these 25 markets. Therefore, as long as lodging demand growth remains stable, the performance of hotels in these markets will remain strong, helping to drive overall industry results.

Total United States supply percent change 2002–2008P
The second reason the current level of new construction impact will be mitigated is the fact that it is taking considerable longer to complete construction than it has at any time in the past decade. It now takes an average hotel more than 19 months to open for business after construction has begun. This is up from just over 12 months at the beginning of the decade. The lengthening cycle is evident across all chain scale segments and regardless of the size of the property.

Total United States room supply percent change Jan. 2003–May 2007
This has obvious implications for the industry on two levels. First, the longer it takes to get projects open, the easier it is to get new supply absorbed. Less obvious is the effect this has on the industry's ability to accelerate the growth of the pipeline. With resources directed to completion issues, the result is a longer cycle in all stages of development.

Finally, the impact of new supply is really only an issue to the degree it affects net supply growth. So, if a large number of rooms are coming out of supply, the new supply is in effect only replacing the old. In 2005 and 2006 more than 60,000 hotels rooms closed in the U.S., offsetting most of the new construction. Should this pace continue, net supply growth will be restrained, thereby prolonging industry health.