September 2011 - With 783 projects/124,696 rooms at the end of Q2, Europe’s Total Construction Pipeline continues in a lower plateau. After falling from their Q2 2008 peaks, most Pipelines in developed countries have been in a bottoming formation that started in 2010, where New Hotel Openings and Project Cancellations exiting the Pipeline have been approximately equal to New Project Announcements (NPAs) into the Pipeline. Sluggish economies and escalating sovereign debt problems are likely to more severely restrict lending in the months ahead, causing a deceleration in movement of projects already in the Pipeline towards construction, as well as creating a fall-off in NPAs.

At 412 projects/71,276 rooms, 53% of Europe’s total projects are currently Under Construction, a high percentage not seen since Q1 2009. As such, New Hotel Openings exiting the Pipeline will remain elevated over the next two years. LE’s Forecast for New Hotel Openings projects 212 hotels/31,085 rooms to open in 2011, then 198 hotels/32,130 rooms in 2012. Then, Pipeline totals are expected to drift lower into mid-decade.

After the Pipeline peaked in Q2 2008, the development surge in the Middle East declined rapidly and has settled into a bottoming formation over the last 6 quarters. The region’s Total Pipeline stood at 428 projects/117,196 rooms at the end of Q2. The sovereign debt crises in many countries and the attendant financing problems throughout the region caused a spate of project cancellations and continue to impede the migration of projects already in the Pipeline toward construction and, ultimately, opening. There are prolonged delays for projects already Under Construction and Scheduled to Start Construction in the Next 12 Months, with developers either unable to secure financing or simply not wanting to rush to completion in what has been a slow-to-recover operating environment. Many countries have a high percentage of their Total Pipelines already Under Construction, particularly Abu Dhabi, with an extremely high 74% of its Pipeline rooms Under Construction, and Dubai, with 66%. Despite delays, these projects should eventually open over the next two years. Thereafter, Pipeline totals will trend downward, as NPAs will be in a lower channel while markets work to absorb the next influx of New Supply.

Saudi Arabia now has the largest Pipeline in the region, surpassing both Dubai and Abu Dhabi this quarter, with 76 projects/24,405 rooms. The Pipeline has been trending upward for 9 consecutive quarters and is up 49% by projects and 61% by rooms in just the last year alone. Quickly, the country’s Pipeline has become the 6th largest in the world by room count and the 11th largest by project count. In Q2, the Pipeline surged further due to rapidly escalating activity in the holy city of Makkah (for further details, please see the Spotlight section below). Riyadh, Jeddah, Madinah, and al-Khobar are additional hotspots seeing rising interest from developers and franchise/management companies looking to expand the presence of their brands in the country.

At 175 projects/33,165 rooms, Africa’s Total Pipeline declined modestly due to an increase in New Openings during Q2. 55% of Africa’s Total Pipeline projects are Under Construction, which will result in rising New Openings over the next two years. LE’s Forecast anticipates a total of 39 new hotels/7,110 rooms to open in 2011, then a new cyclical high of 46 hotels/8,561 rooms in 2012.
 
SPOTLIGHT:  THE JABAL OMAR DEVELOPMENT PROJECT IN MAKKAH, SAUDI ARABIA
In May, Jabal Omar Development Company signed multi-hotel agreements with three leading franchise companies, bringing a total of 12 new projects and over 6,500 rooms into the Pipeline in Makkah. Three of these projects went immediately Under Construction, while the others are Scheduled to Start Construction in the Next 12 Months. A total of 26 hotels are to be built as part of the massive 2.5 million square foot (230,000 square meters) mixed-use site being developed in the Jabal Omar area around the Grand Mosque. The $5.5 billion mega-project, which includes 39 towers for hotel, commercial and residential units, is reported to be one of the largest in the world in terms of hotel units.

• Hilton Worldwide signed management agreements for 6 new hotels including a 496-room Conrad Hotel, a 516-room Hilton Suites, an 806-room DoubleTree, and 3 separate Hilton Hotel properties, two of which will have 865 rooms each. All 6 hotels are slated to open in 2014.
• Marriott International signed a management agreement for 3 properties that will open in two phases: a 540-room Marriott Hotel
• scheduled to open in 2014, then a 636-room JW Marriott and a 432-room Courtyard by Marriott that will open in 2015.
• Hyatt signed to manage 3 hotels, including a 628-room Hyatt Regency to open in 2013, a 200-room Hyatt Place and a 200-room Summerfield Suites, both of which will open in 2014.
• Jabal Omar Development Company expects to enter into agreements with 6 other international franchise companies by the end of 2011 for the management and operation of 14 additional hotels yet to enter the Pipeline at the site.

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.