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Lodging Econometrics Q3 2010 Reports Europe & Middle East
Pipeline Totals Trend Downward

New Austerity Measures Impact Developer Sentiment

December 13, 2010 - Concerns about economic contagion are spreading throughout Europe, first in Iceland, Greece, the UK and Ireland, and now perhaps in Portugal, Spain and maybe Italy. As a result, governmental spending policies have turned austere and near-term economic growth is slowing considerably. For perspective, 23 of the 25 largest European economies are forecasted to grow at a rate slower than that of the United States in 2011. As anticipated, developer sentiment has cooled noticeably.

The total European Pipeline stands at a cyclical low of 697 projects/117,964 rooms and is expected to trend downward through 2012. Within the Pipeline, Projects Under Construction have been in a six-quarter bottoming formation while projects Scheduled to Start Construction in the Next 12 Months have reached a new low. Quarterly Construction Starts and New Project Announcements into the Pipeline are trending downward. From a QoQ perspective, all pipeline metrics experienced pronounced QoQ declines in Q3 as well.

The sovereign debt crisis in Dubai impacted credit availability throughout the Middle East, causing a flurry of project Cancellations and the delay of numerous other projects, many up to 24 months. New Hotel Openings have spread out and after a substantial dip in 2010 will increase in 2011, 2012 and beyond. The near-term Pipeline is especially bunched up in Dubai. Together with Abu Dhabi, they account for 33% of total Pipeline projects and a whopping 64% of all rooms currently Under Construction
in the Middle East. As New Hotel Openings accelerate through mid-2013, Pipeline counts will decline precipitously. The region will then enter a prolonged period of guest room absorption.

The European Pipeline peaked in Q108 at 1,032 projects/173,042 rooms and has steadily declined since. Construction Starts and NPAs are expected to continue to decline throughout 2011 and 2012.

Within Europe, the UK accounts for 26% of all projects in the region’s Pipeline. Russia, Germany and Spain follow at a distance. London has by far the largest city Pipeline with 35 projects/7,386 rooms. Edinburgh and Manchester are also in Europe’s top 10 cities. Following a change in government, the UK was one of the first to implement draconian budgetary adjustments. Changes in developer sentiment are already reflected in its Pipeline. Of the 20 projects Cancelled or put on hold in Q3, 12 of them were in the UK. Of the six projects Cancelled that were Under Construction, four were in the UK. Also, NPAs reached a record low in Q3, with just four new projects totalling 980 rooms announced. Total Pipeline counts will further decline as New Openings accelerate in advance of the Olympics. Until there is solid evidence that the European economies are growing at a sufficient pace and banks become more stabilized, declining Pipeline trends are not likely to change.

The Middle East total Pipeline stands at 422 projects/113,680 rooms, down from the Q208 peak of 566 projects/164,259 rooms. Together, Dubai and Abu Dhabi account for 35% of the projects and 40% of the rooms in the Pipeline.

The sovereign debt crisis caused a serious slow down in construction projects in Dubai and, to a lesser extent, in other countries as well. Many developers experienced a liquidity crisis and were unable to access capital to either start planned projects or maintain
existing construction project time lines, many of which slowed to a near halt. New Hotel Openings fell off significantly in 2010 to 46 projects/13,443 rooms but should accelerate between 2011-2013 as lending stabilizes. At 69%, Dubai has a very high 54 of their 78 Pipeline projects presently Under Construction. Abu Dhabi has 41 of its 69 projects Under Construction, or 59%.

Pipeline metrics indicate that the decade-long development surge in the Middle East has run out of steam. Projects Scheduled to Start Construction in the Next 12 Months are at cyclical lows. Projects that secured financing and started construction each quarter are in a bottoming formation. Most significantly, New Project Announcements (NPAs) into the Pipeline are at a new low for the cycle. There was just one NPA in Dubai in Q3 and just four in Abu Dhabi over the last six months. These metrics are sure indicators of an ending development cycle, a fact that may well be masked by the considerable publicity gained by the flurry of large, magnificent, one-of-a-kind, “starchitect” inspired hotels scheduled to open through 2013.

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.


Jen Robertson, Marketing Manager
Lodging Econometrics
500 Market Street, Suite 13,
Portsmouth, NH 03801 USA
p: +1 603-431-8740

Also See: For Q4 2009, the Total Hotel Construction Pipeline for Europ, Middle East and Africa Stands at 1,373 projects, a Decline of 22% Since the Q2 2008 Peak / March 2010

LE’s Initial Forecast for 2009 Predicts that 1,354 Hotels with 159,368 Rooms Will Open in the U.S.; Private Equity Makes a Big Splash in the Lodging Industry / July 2007

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