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Executive Summary of the 2nd Qtr U.S.
 Hotel Construction Pipeline

Cancellations and Postponements at Record High of 507 Hotels/76,726 Rooms

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Forecast for New Hotel Openings

For the first time, Lodging Econometrics (LE) has compiled and announced its forecast for New Hotel Openings for 2011. New hotel openings are projected at 759 hotels/74,493 rooms. LE has also adjusted its forecasts for 2009 and 2010. The 2009 forecast has been reduced to 1,425 new hotels/156,653 rooms, down by 5,036 rooms, a decrease of 3%. The 2010 forecast has been adjusted to 1,073 projects/124,439 rooms, down 21,277 rooms or 15%.
 
These forecasts are lower than what might be first thought based on the size of today’s pipeline. For larger projects, there is no new lending available for “take-out” mortgage loans. Presently, neither loan syndication or loan securitization systems are functioning. Government programs to remove toxic mortgages from bank balance sheets are slow in coming. Investment incentives to restart securitized lending are just beginning to surface. It’s a very slow process and is not expected to change the lending landscape for lodging any time soon. The priority for banks is to continue to reserve against future balance sheet problems, leaving little room for originating new loans. Only selected, smaller projects are still able to obtain new financing at the community level.

Meanwhile, lodging operating statistics have continued to show declines through June. The rate of decline is hoped to moderate starting late 2009. However, future growth will likely remain flat for a prolonged period as the pace of economic recovery for consumer and business spending is anticipated to be slow.

Key Pipeline Metrics



Developer sentiment, which is changing rapidly, is best expressed in the Key Pipeline Metrics. Construction Starts, almost a pure reflection of the lending environment, stand at a cyclical low of 190 projects/19,820 rooms in Q2. Only a relatively small number of projects have migrated up the Pipeline toward construction, while many others remain stalled. As these trends continue, LE expects more developers with stalled projects to cancel or to postpone until lending and operating trends improve.
 
In Q2, Cancellations and Postponements reached a record high of 507 projects/76,726 rooms, making this the second consecutive quarter with cancellations at 500 or more projects. While Cancellations and Postponements always take place on a one by one basis, a new trend has recently emerged.  Some developers have put their entire development portfolio on hold until another point in time as they move to preserve their capacity to deal with other issues in their operating portfolio. 
 
Finally, New Project Announcements (NPA’s) into the Pipeline, directly impacted by the precipitous operating declines, are at their lowest level in 18 quarters. At 356 projects/40,682 rooms, NPA’s are down 68% by rooms from Q1 2008’s cyclical peak.  This trend will continue in a low channel until early next decade.

Pipeline Overview

In Q2 2009, the Construction Pipeline stands at 4,385 projects/545,425 rooms. This is a drop of 25% by projects and 31% by rooms from the Pipeline’s peak in Q2 2008. Totals will continue to descend throughout 2009 and 2010, as a high number of projects exit the Pipeline as new hotel openings. Continued, elevated levels of cancellations and postponements will draw project counts down further, while low new project announcements will hamper the refreshing of the Pipeline.
 
However, that should produce a silver lining ahead for the industry. Down nearly a third in the last four quarters, the Total Pipeline is decreasing rapidly and should be near bottom by the end of 2010, which should help pave the way for industry recovery. When the economy bounces back and lodging performance improvement gets underway in earnest, there should not be a simultaneous headwind of new supply coming online to overcome.


ABOUT LODGING ECONOMETRICS

With over 30 years of experience, Lodging Econometrics (LE) is the foremost source of global business development intelligence for hotel franchise companies. LE serves as your strategic planning partner. We identify every opportunity available to your company worldwide, based on your particular market share goals, sales objectives and brand specifications. For more information about LE’s complete report on the United States Lodging Construction Pipeline or to inquire about any of LE’s other lodging real estate reports, please contact us at 603-431-8740 x19 or info@lodgingeconometrics.com.
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Contact:


Lodging Econometrics
500 Market Street, Suite 13, 
Portsmouth, NH, 03801 USA
p: 603.431.8740, x 25
info@lodgingeconometrics.com
www.lodgingeconometrics.com

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