LE reported that New Guestroom Supply Additions for both �04 and �05 are expected to be below �03 levels, good news for the Industry since guestroom demand, occupancy, average daily rate (ADR) and room revenues should improve rapidly as the economy accelerates forward against this backdrop of falling supply.

LE forecasts a year-over-year decline of New Hotel Openings in �04 that will result in a net supply increase of 1.2% for �04 and 1.3% for �05, after accounting for hotel closings, other removals from inventory and the annual absorption cycle. LE also reported that in �03, 598 New Hotels having 71,691 rooms opened representing a net supply addition of 1.3% for the year, the lowest since 1994.

Demand growth will be substantially ahead of supply growth throughout �04 � �05, resulting in year-over-year operating improvements for almost every month well into �05. ending with finality Lodging�s dogged 3-year recession.

Bottoming Formation Continues

At the end of  �03, the Total Development Pipeline was still in a bottoming formation. Total projects were down 16 and guestrooms, 19,817 over �02.

Developers with previously announced projects already in the Pipeline are moving ahead more confidently, but it�s still too early in the economic recovery period for any surge in New Project Announcements. LE reported 1,032 new announcements in �03 an increase of a scant 26 projects over the previous year, but the room count fell by 13%.

Most New Project Announcements enter the Pipeline at the Early Planning stage.  At the end of �03 the project count in Early Planning was 615 hotels, the smallest since the early 90�s, having just 85,845 rooms.

Projects already Under Construction determine New Guestroom Supply Additions in the next 12 months. At year-end, the project count is down 9% and the guest room count down 15% over �02. That indicates another decline for New Openings in �04. LE expects just 62,894 guestrooms to open in �04 compared with 71,691 in �03.

Hotels Scheduled to Start Construction in the Next 12 Months is a leading indicator for guestrooms coming on line in �05. At year-end, Starts are up by 59 projects over �02, but down 3,255 rooms. Using Starts as the leading indicator and accounting for a faster pace in the forward migration of projects already in the Pipeline, LE forecasts a slight increase in guestroom openings in �05 to 69,879 rooms producing a net supply increase of 1.3%.

While New Guestroom Supply Additions in �05 will rise above the �04 bottom they will not surpass �03�s total unless there�s some immediate and dramatic quickening in the New Project Announcements, which LE does not foresee in the near term.

Marriott and Hilton

LE reported that Marriott and Hilton continued their neck-and-neck pace in new hotel development. In the fourth quarter Marriott added 15 new projects to the Total Pipeline compared to 6 for Hilton.  At the end of �03, Marriott had a total of 303 projects with 47,992 rooms in the Pipeline, including 25 hotels with 5,298 rooms converting to Mariott brands. Hilton had 333 projects with 43,451 rooms in the Pipeline, including 9 hotels with 2,661 rooms converting to Hilton brands. 

Top 25 Markets

New Openings in the Top 25 Markets should represent 30% of all guest room openings in ��04, dropping to 26% in �05. That�s down from 36.6% of all openings in �03. As this percentage to overall openings continues to fall, LE expects a number of cities to outperform the industry�s already improving operating trends. 

Outperforming Markets should be: Anaheim, Los Angeles, Miami, New York, Norfolk, Hawaii, Phoenix and Washington. Lagging, under-performing markets are likely to be Boston, Denver, Detroit, Houston and St. Louis.