LE researchers in direct contact with Developers throughout the quarter noted that many were reluctant to advance projects up the Development Pipeline or to make any New Project Announcements. Most were delaying in hopes of later opening into a confirmed recovery.

LE researchers reported that in 2Q 03, after fluctuating for the previous three quarters in a narrow band resembling a bottoming formation, the Total Development Pipeline decreased by 91 projects having 13,984 rooms, or down 5.2% from the first quarter. At 1,868 projects /254,317 rooms the Total Pipeline is at an all time cyclical low � 53% below the record high of 3Q98.

For the quarter New Project Announcements fell to 203 projects/22,263 rooms, the lowest number for this cycle. Leaving the Pipeline as New Openings during the quarter were a low 173 projects/17,381 rooms. Also exiting the Pipeline were 121 projects / 18,866 rooms that were either Postponed or Cancelled.

�Even with financing reasonably available, Developers are reluctant to move projects along due to the uncertain economy and the industry�s continuing slow recovery, causing a portion of the Pipeline to become stalled,� said Patrick H. Ford, president of Lodging Econometrics. �There is a �bunch up� of projects that were due to move forward from one stage to another � from Starting Construction Within 12 months to Under Construction and from Early Planning to Starts Within 12 Months � that our researchers reported. It�s on ongoing concern among Developers and Industry Brand Managers alike.�

Declines Reported in Each Stage of Development

LE reported that 528 projects/78,979 rooms were Under Construction in 2Q, the lowest this cycle, less than one third of the 1,671 projects recorded at the cyclical peak in October of 1998. Projects Under Construction declined by 34 projects from 1Q03 yet by only 43 rooms, a decline that would have been greater were it not distorted by the start of 4 significant Casino projects having 2,867 rooms.

LE stated that Starts in the Next 12 Months at 722 projects/88,181 rooms declined a whopping 18% year-over-year and were down 8% quarter-over-quarter. LE attributed these reductions to stalled projects and Postponements and Cancellations, which impacted the �Starts� stage as hard as the Early Planning stage.

After marginally increasing in the last 3 quarters, projects in Early Planning abruptly reversed course. At 618 projects/87,517 rooms, projects decreased 5.8% quarter-over-quarter and rooms declined by 6.7%, both due to the low number of New Project Announcements and heavy Postponements and Cancellations. At 618 hotels, Projects in Early Planning are at the lowest count for this development cycle, according to LE.

Top 25 Markets

LE reported that supply in the Top 25 Markets has been growing at a faster pace than the industry as a whole, but that the gap is now beginning to close. In 2002, 200 projects with 30,471 rooms opened for a guestroom supply increase of 2.3%. LE estimates 150 projects / 23,775 rooms, or a 1.8% increase in 2003 and 162 projects / 23,456 rooms or 1.7% in 2004, much closer to the projected industry-wide forecast of 1.5% for next year.

Of the Total Development Pipeline decrease of 13,984 rooms in 2Q, LE stated that 78% or 10,965 rooms occurred in the Top 25 Markets. One out of 3 projects that were Postponed or Cancelled came from the Top 25 while only 1 out of 4 New Announcements were located in the Top 25. These were mostly smaller mid-scale and extended stay projects, not large urban center full-service hotels. LE noted that these shifts are important factors in slowing supply growth in the nation�s larger markets.

�In this demand-induced recession some markets will struggle with additional supply coming on line that was planned earlier in the cycle,� said Ford. �The markets likely to have difficulty over the next 18 months with continued supply growth in excess of demand are Boston, Houston, Dallas, Detroit, Orlando and St. Louis.�

Developer Confidence Key to Increased Construction Activity

The first signs of a normal migration of projects up the Pipeline along with an increase of New Project Announcements, originally envisioned for the second half of 03, now seems further outward, perhaps another 6 months, said Ford.

Ford said a reading by Developers of economic advancement and the speed with which the Lodging Industry improves will determine the pace of activity. With the Iraqi offensive completed, the SARS scare ending, still lower interest rates, tax cuts, and the upturn in the stock market, conditions seem poised to improve. Even modest improvements to the economy and Industry operating performance could provide Developers the confidence to move ahead with their projects, Ford suggested.

Get brief summary tables that display important markets for New Hotel Construction, Conversions and Renovations and the Census of Open and Operating Hotels. The Nuggets are quick reference snapshots, great for summary review. Contact: Peter Gluckler at (603) 431-8740, Ext 19 or Email [email protected]