USA Winter 2014 US Lodging Real Estate Trends Show Construction Pipeline Spurts to the Upside
February 10, 2014 10:40am
Marriott Delivers Big Gains
The volume bounce from the 2Q11 bottom is significant because it starts the second leg of the new real estate cycle where Pipeline growth is expected to steadily increase as single asset and portfolio selling prices are now at record highs, signaling the point where it will be cheaper to build new hotels than to buy existing ones.
The improvement in developer and investor sentiment is stimulated both by the industry-wide recovery of operating and profitability statistics and a slowly improving lender environment in a sluggish economy that still functions considerably below potential.
Pipeline Stage and Franchise Company Growth
The Franchise Companies with the greatest concentration of Brands in the Upscale and Midscale categories increasingly control a higher percentage of the Pipeline. At 613 projects and 75,495 rooms; Marriott has 20% of the Total Pipeline by Projects, Hilton has 19% followed by 17% for InterContinental Hotels. Marriott is the first company whose Pipeline has recovered sufficiently to reach the 75,000 room plateau, a level that has not been reached by any company since 2Q09, four and a half years ago! Also noteworthy, in 4Q13 Marriott posted 149 New Project Announcements (NPA's) into the Pipeline, nearly three times more than any other company, and at 49 projects, had the highest number of Construction Starts in the quarter as well.
Internal Pipeline Metrics on the Increase
Annual Construction Starts, which were 759 Projects/ 87,169 Rooms in 2013, have nearly doubled since the 2010 bottom but are still 50% less than the peak established in 2007.
For NPAs into the Pipeline, in 2013 there were 1,377 Projects/ 167,126 Rooms announced. Although NPAs are up 38% over the 2011 bottom, they are 59% below the 2007 peak.
The overall economic recovery from the Great Recession has been slow and sluggish. The fall from the previous peak was so significant and the financial crisis so deep and wide-spread that the recovery, although consistently uptrending, is probably running about two years behind the pace of recovery for other recessions. Although the economic metrics monitoring recovery are uptrending slowly, the metrics for economic growth remain stagnant.
The same can be said for the industry's operating and profitability metrics and for the
Construction Pipeline too – recovering, but not growing as hoped for. The key to economic growth for the next few years is enacting job creation policies that would boost the GDP growth rate over 3%. It's also the key to increasing guest room demand which will ultimately spark development activity.
A few economic hurdles remain: further implementation of the Dodd Frank rules and a potential slowdown in emerging markets. With the decks clearing, the hope is that economic growth will become the agenda for the current Congress and the platform for aspiring political candidates.
Tags: lodging econometrics
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