July 2, 2008 (USA) – Lodging Econometrics (LE), the Global Authority
for Hotel Real Estate, has released its Construction Pipeline Report for
Europe, announcing the Total Construction Pipeline at a new cyclical high
of 1,031 projects/172,815 guestrooms at the end of Q1 2008. LE President
Patrick Ford commented, “The Pipeline in Europe continued to grow, propelled
by peak occupancy rates, ADR and RevPAR in many markets, as well as the
ongoing global development surge of the very popular, smaller, contemporary
branded hotels, particularly in the upscale and mid-market segments.”
There are a cyclical high 582 projects/94,742 rooms currently Under
Construction, some 55% of project and room counts in the Total Pipeline.
With financing for these projects secured earlier, developers have noticeably
rushed to get underway and opened. Totals in Early Planning also reached
a cyclical high of 243 projects/41,391 rooms. In the wake of the credit
crisis, larger projects in the Pipeline not yet under construction are
encountering some difficulty in securing financing and will idle while
developers wait for the credit crisis to resolve. As a result, totals for
projects Scheduled to Start Construction in the Next 12 Months have decreased
to 206 projects/36,682 rooms. All projects included in the LE Pipeline
have dedicated land parcels, are being actively pursued by developers and
have been verified by the brands.
Ford noted, “With Europe’s abundance of international business and financial
centers, the historic and cultural allure of its capital cities, the shortage
of land parcels, and the high barriers to entry, Europe’s lodging industry
remains a very attractive investment sector. The challenge is finding financing,
as institutional lending for mixed-use projects and larger, freestanding
hotels has evaporated. Still, there are a few smaller lenders without balance
sheet difficulties willing to provide financing to experienced developers,
particularly if their project involves a globally recognized brand. Generally,
the projects finding financing are smaller and the terms are more stringent.”
Lodging’s operating performance has been excellent through early spring,
particularly in Northern and Western Europe. For the most part, developers
remain optimistic, thinking the slowdown from high operating peaks, while
prolonged, should be shallow. As a result, developers are looking beyond
today’s concerns and into the next cycle, thinking the lending crisis will
eventually right itself.
LE’s Forecast for New Hotel Openings
Q1 2008, 57 New Hotels/8,691 rooms came online. LE’s Forecast for the rest
of 2008 calls for 233 New Hotel Openings with 32,349 rooms, and 361 Hotels/56,316
rooms in 2009. With 94,742 guestrooms currently Under Construction, these
projected New Openings are already in the ground, making LE’s New Supply
Forecast for 2008-2009 a certainty.
Construction Starts Jumped Forward in Q1
New Construction Starts for hotels already in the Pipeline jumped up
in Q1 2008, with 173 projects/24,938 rooms now underway. These projects
had financing in place before the credit crisis materialized. Postponements
and Cancellations trended upward to 45 projects/8,318 rooms. The reduced
availability of financing will likely restrain Construction Starts going
forward, and will also result in increased Postponements and Cancellations.
Fewer New Projects Announced in Q1
peaking in Q4 2007, New Project Announcements into the Construction Pipeline
declined to 173 projects/25,488 rooms. As New Project Announcements are
a key indicator of developer sentiment, this slowdown underscores the disappearance
of institutional financing for large four- and five-star projects, and
the growing popularity of smaller, mid-market branded properties that are
easier to finance.
Many New Project Announcements are located in London, as well as in
other cities throughout the UK, and are set to open early next decade in
anticipation of the tourist boom for the 2012 Olympics. There are also
a large number of New Projects announced in emerging markets in Central
& Eastern Europe (CEE) and the Commonwealth of Independent States (CIS).
Country and Market Trends
The United Kingdom, a target area for every global brand, has the largest
Total Pipeline in Europe, with a total of 321 projects/46,531 rooms. 75
projects/14,010 rooms are in London, 44 of which are expected to come online
in 2010 and beyond, as the city prepares to host the 2012 Olympics. High
levels of development with New Openings planned for early next decade are
also seen in other urban areas and key industrial centers. Among the cities
expected to benefit from increased travel are Birmingham, Manchester, Liverpool,
Edinburgh, Aberdeen, Sheffield, Leeds, and Glasgow, which have a combined
83 projects/13,271 rooms.
Other than in Russia and the CIS countries, where Pipelines are just
beginning to form, Pipelines in other European countries were seeded much
earlier in the decade and have 50% or more of their projects already under
construction and have a heavy flow of New Hotel Openings scheduled for
Spain has the second largest Pipeline in the region with 179 projects/27,701
rooms, led by Madrid with 20 projects, Barcelona with 19, then the port
city of Malaga, all popular tourist and cultural hubs. Germany has 76 projects/14,274
rooms in various stages of development. The capital of Berlin has 13 projects/3,148
rooms, followed by the financial centers of Frankfurt and Munich, and the
industrial port city of Hamburg. France’s Total Pipeline has 56 projects/6,347
rooms. Its capital, Paris, leads with 11 projects.
Countries in Central & Eastern Europe (CEE) are enjoying growing
economies, increased consumer spending and an expanding flow of inbound
tourists. Lodging companies have aggressive growth strategies in these
countries, targeting their high-end brands in the capital cities and their
mid-market hotels elsewhere.
The Czech Republic has 19 projects/3,320 rooms in its Pipeline. Prague,
the capital, accounts for 15 of those projects. Of Poland’s 16 projects/2,449
rooms, 3 are in the capital of Warsaw, with the remainder in key locations
like the main seaport of Gdansk, education hub Poznan, and Katowice, a
major coal and steel center. With its celebrated coastline on the Adriatic
Sea, Croatia is gaining ground as a resort destination. The country has
14 projects/3,319 rooms in its Total Pipeline, all in coastal locations
such as Zadar, Split and Dubrovnic.
Russia has the fourth largest Pipeline in Europe with 60 projects/14,261
rooms. 21 projects are in Moscow, which is rapidly expanding due to growing
oil and gas revenues. 11 projects are in historic, more tourist-oriented
Saint Petersburg. Kazakhstan has 9 projects/1,801 rooms in its Pipeline,
mostly in its capital and commercial center, Almaty.
While modest compared to the rest of Europe, the Pipeline in the CIS,
at 79 projects/18,364 rooms is likely to expand quickly. Several global
lodging companies recently outlined expansive development aspirations in
this area, for Russia in particular.
For Global Companies, Upscale and Mid-Market Brands Are Finding
Approximately 75% of projects in the Construction Pipeline have already
made a branding decision. Of the remaining 25%, nearly 80% will make a
branding decision prior to opening. This may be a surprising observation
to some, as a sizeable portion of Europe’s Current Supply of Open and Operating
Hotels is unbranded. But, as elsewhere, the branding revolution is well
underway in Europe, as global companies see great opportunity in rapidly
expanding their modern, contemporary branded concepts so popular with global
InterContinental Hotels Group leads development in the region, with
137 projects in their Pipeline. The company’s midscale offerings are most
prominent. This includes 34 Holiday Inn projects, many of which will be
in the United Kingdom and Russia, and 68 Express by Holiday Inn projects,
the majority being sited in the UK, Germany and Spain.
Marriott continues to expand its global reach with 33 projects in its
Pipeline, 15 from its high-end brands: Ritz-Carlton, Marriott and Renaissance;
as well as 18 Courtyards. The company has plans to further expand its European
portfolio, which includes an added focus on the Courtyard brand. A number
of New Project Announcements will soon be forthcoming for the Edition brand,
an exciting new venture between Marriott and noted boutique hotel developer/designer
Hilton Hotels has 31 projects in its Pipeline, 19 of which will be
from its Hilton Hotel brand. The company is aggressively increasing its
presence throughout Europe with its new, enlarged portfolio of brands,
including Doubletree Hotels, Hilton Garden Inn and Hampton Inn. Joint ventures
are a preferred strategy for Hilton to accelerate the introduction of its
family of brands throughout the region. Recent joint venture agreements
include 15 projects in the UK, 25 properties throughout Russia, and another
25 hotels in Turkey.
Starwood’s 22 projects in their Pipeline draw heavily from their portfolio
of luxury and upper upscale offerings, including 10 large, full-service
Sheraton Hotel projects.
European-based global companies are active and strong pace-setters
throughout the region.
France’s Accor has 92 projects in its Pipeline, including 41 midscale
Hotel Ibis properties, with 11 in France and 13 in Spain. Accor also has
significant development with their budget brand Etap Hotels with 22 projects,
mostly in the UK, France and Spain.
Rezidor Hotel Group, based in Belgium, has 74 projects in their Total
Pipeline, with 40 to be upscale Radisson SAS properties, 23 of which will
be in emerging markets in CEE and CIS countries. Rezidor also has 30 projects
in its mid-market Park Inn brand.
Kempinski Hotels & Resorts has 14 projects, most already Under
Construction and being built in Central & Eastern European countries,
including Croatia, Slovakia and Latvia.
Spain-based NH Hoteles has 21 projects in their Pipeline, while Sol
Melia Hotels & Resorts, has 11 projects, 7 of which are their mid-market
Sol Hotels brand.
For UK hotel companies, Whitbread has 16 Premier Inn projects making
up their Pipeline, and budget hotel company Travelodge has 38 projects.
All projects are being developed in the UK.
The Construction Pipeline is set to unfold at a quickening pace throughout
Europe, with over 88,800 rooms forecasted to come online over the next
two years. Much of this is already under construction and is certain
to occur. However, the lending crisis and resulting uncertainty have projects
in Early Planning idling a bit, while developers wait for the financing
situation to improve.
The number of New Project Announcements into the Pipeline is declining
as developers await more visibility about how the financial crisis, rising
inflation and slower economic growth rates will impact existing hotel operations.
The summer travel season will be a true test, as we assess how consumers
react and businesses respond to changing economic conditions. A few more
months are needed for new trend lines to take shape, before we can project
the future impact on both hotel operations and development trends.
Lodging Econometrics (LE) is the global authority for hotel real estate.
LE conducts Supply Side research for all markets, countries, companies
and brands – worldwide!
To learn more about LE's products and services, please contact LE at
+1 603-431-8740 ext. 25. Or visit online at www.lodgingeconometrics.com.