For the period July 1 through September 30 rooms Under Construction dropped by 6,281 or 5.2%, rooms In Permitting declined 9,192 or 6.7% and rooms in Early Planning were down by 8,386 or 7.2%. 

LE noted that the pace of these reductions appeared to be moderate and sequential following the major declines that occurred during the first half of the year. The 3Q declines did not reflect the tragic events of September 11 since there was little time for developers to react before the end of the quarter. 

The most significant decreases occurred in the Upper Upscale, Upscale and Midscale without Food and Beverage segments, mostly attributable to the weakening economy. The largest declines were in Upper Upscale where the number of projects In Permitting, scheduled to start in the next 12 months, and in Early Planning declined by 4,189 rooms or 20.7% and 1,564 rooms or 15.4% respectively. Upscale projects declined 1,167 rooms In Permitting or 4% and 2,563 rooms in Early Planning or 13.5%. Upper Upscale and Upscale hotels are typically located in major urban and resort markets or in large suburban mixed-use projects. 

Midscale without Food and Beverage dropped 1,032 or 17.5% for In Permitting and 2,002 or 10.8% for Early Planning. These projects are generally in highway and suburban locations and are financed by credit companies and local banks where financing is extremely difficult to acquire.

There were 354 new project announcements entering the Pipeline in 3Q, but 515 exited, as 275 projects opened and, significantly, 240 were cancelled or put on hold. LE reported 86 projects migrated backward as developers moved them from In Permitting to Early Planning largely as a result of financing difficulties or poor business conditions. LE expects a continuation of these conditions and the current recessionary environment until the third quarter of 2002.

LE�s analysts anticipate that 4Q will more significantly reflect the impact of the events of 9/11 on the Development Pipeline. Coupled with the accelerating declines in operating performance and the shutdown of lodging financing, LE expects the following to occur:

• A quickening pace to cancellations and projects being placed on hold.
• A further slowdown in new project announcements.
• Delays in new openings as developers attempt to time project completions to occur closer to the beginning of the recovery period.
• A �bunching up� of projects that are scheduled to start within the next 12 months as developers wait for the financing window to open.

Since this is one of the few lodging downturns that were induced by dramatic occupancy and rate declines, not by overbuilding, LE views the current construction cycle as being somewhat �cut short.�

LE�s report anticipates that once the economy recovers and business conditions normalize, the next construction wave will start much earlier than it has in previous cycles and will be led by development in the mid-market and economy brands.

Lodging Econometrics will report more fully on its findings in 3Q Quarterly Perspectives, its strategic planning newsletter. To inquire about a copy, contact Lodging Econometrics, 500 Market Street, Suite 13, Portsmouth, NH 03801 or call 603 431-8740, ext. 18.

Headquartered in Portsmouth, NH, Lodging Econometrics, the research division of National Hotel Realty, is the lodging industry�s real estate market expert. It analyzes Market Trends, Market Share and Penetration Trends as well as the Current Hotel Census for every major U.S. city, hotel company, and brand. It also tracks all New Development projects, Sales Transactions, and the Strategic Plans of major hotel companies, REITS and investor groups.  National Hotel Realty provides brokerage, consulting and management services to the lodging, real estate and lending industries.