February 2011 - Lodging Econometrics released the results of their 2011 Outlook on Real Estate Trends, finding cyclical lows in hotel openings and reduced financing for new hotel deals.

Many developers assessed their project portfolios at year-end and concluded that development conditions will not change materially in 2011. Construction financing will remain largely unavailable and lodging operating metrics will improve, but only at a slow pace.

You can download the full executive summary here.

As a consequence, developers pushed a large number of their projects already in the Pipeline from Scheduled Starts in the Next 12 Months back to Early Planning. Counts for Scheduled Starts decreased 15 percent by projects and 13 percent by rooms quarter-over-quarter, while Early Planning saw an 8 percent project and 6 percent room increase. In Q4, few new projects started construction. This resulted in a historic low of 449 projects/53,991 rooms for the Under Construction stage, which now accounts for just 14% of all projects in the Total Pipeline.

New Hotel Openings will remain in a bottoming trend over the next three years, as the Pipeline continues to recede. For 2011, LE is now projecting just 446 hotels/46,343 to come online, a gross growth rate of 0.9 percent. That's a fall-off of over two-thirds from the cyclical highs in 2008 and 2009. For 2012, LE's Forecast calls for 487 hotels/48,860 rooms to exit the Pipeline as new supply. In 2010, 635 new hotels/70,849 rooms opened, just half of what opened in 2009, resulting in a supply growth rate of 1.5 percent.

Banks are not likely to finance new construction until most of their "distressed loans" are cleared from their portfolios and the lodging industry's operating performance has improved. To increase profitability and asset value, occupancy, which showed only incremental increases during the second half of 2010, must make more substantial gains to drive up average room rates. It's a slow process. Developers will likely be en- trenched on the sidelines, and construction activity will be subdued at least into 2012.

The total US Construction Pipeline is at a new cyclical low of 3,122 projects/372,813 rooms as of the end of Q4. Totals will drift further downward for the foreseeable future, as the unavailability of lending continues to curb New Project Announcements into the Pipeline.

With just 1,241 projects/151,435 rooms entering the Pipeline in 2010, NPAs are at a low not seen since 2004 and are expected to remain in a low channel into 2012.

Construction Starts are another casualty of scarce financing. For projects already in the Pipeline, they reflect the rate of project migration forward towards construction. Only 422 projects/45,696 rooms were recorded in 2010, a low not seen in over a decade.

Lodging demand is expected to continue to improve in 2011 and 2012. With little new supply to overcome, the hope is that average room rates will begin to accelerate. There was a solid increase in real estate values in 2010 off the 2009 bottom. However, future increases are dependent upon further demand and room rate improvement. Until more substantial profitability gains are posted, it will be cheaper to buy existing properties than to construct new ones, a trend likely to extend at least into 2012.

Launched in 1995 with the encouragement of Wall Street analysts and many Lodging Industry leaders, Lodging Econometrics (LE) is the recognized authority on all hotel real estate including the Development Pipeline and the Sale and Transfer of Lodging Real Estate nationwide. LE also compiles and maintains the Industry's Census of Open and Operating Hotels including the Names of Owners & Management for more than 60,000 hotels in the U.S. and Canada.