Roadside Hotels Expect Boom From Infrastructure and AI Spending

Hotel companies continue to gear up for a surge in demand from workers wearing hardhats as more than $1 trillion in public and private infrastructure spending is set to fuel years of U.S. construction projects.

An expected influx of traveling workers is reshaping the maps where hotel groups plan to open properties. To capitalize on this trend, some hotel groups have added extended-stay and budget brands.

Driving the news:

• Federal spending In August 2022, the U.S. set aside about $1 trillion over a decade to spend on fixing bridges, roads, and dams. So far, only 4% of infrastructure money has been spent, according to Wyndham executives.

• AI-driven spending: Another piece of recent federal legislation, the Chips Act, is credited with kickstarting an investment boom. U.S. and foreign manufacturers have unveiled plans to build dozens of chip factories and supporting facilities that may be worth more than $220 billion in investment, according to the Semiconductor Industry Association.

Hotel groups may benefit

Major hotel chains already report increased bookings from construction crews and other workers — a trend they expect to accelerate.

• Wyndham, Choice Hotels, and BWH Group (the company behind Best Western) are particularly well-positioned, with thousands of properties near highway exits that could be close to construction sites.

• Wyndham last week opened its first property in its Echo Suites Extended Stay by Wyndham brand. On its first day, two guests checked in with reservations set to last for seven months. The hotel group calls it its fastest-growing new brand, with 270 properties in the pipeline after a year-and-a-half of marketing it to owners.

• The impact of infrastructure spending has a roughly $150 million incremental royalty value to Wyndham every year, according to a report by Truist Securities analysts Patrick Scholes and Gregory Miller. To put that in context, analysts covering Wyndham forecast that its fee revenues this year will be about $550 million.

What they’re saying

• “If we look at extended-stay occupancy, it’s up 12 points higher year-to-date than the rest of the industry,” said Wyndham president and CEO Geoff Ballotti in a CNBC interview on July 10.

Story continues

• “This surge is real,” said Choice Hotels CEO Pat Pacious, noting expansion in “middle class, small business, construction, logistics” verticals.

Between the lines

This shift is leading hotel groups to adapt their offerings.

What to watch

• Roughly a third of the construction pipeline for hotels in the U.S. is extended-stay projects, or roughly 30% of planned rooms, according to Lodging Econometrics.

• It’s uncertain whether the surge in infrastructure spending will lead to lasting growth. Some hotel group executives have said these hotels will not dry up on demand after infrastructure projects in the local markets are complete and that the infrastructure spend would not be impacted even if there is new administration in the White House. But it’s unknown if their predictions will come true.

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