New Hotel Construction Lowest in Years

February 18, 2011

According to Lodging Econometrics, construction financing for new hotel projects will remain largely unavailable in 2011 and lodging operating metrics will improve, but only at a slow pace.

Lodging Econometrics (LE), based in Portsmouth, NH compiles and maintains a census of open and operating hotels of more than 60,000 hotels in the U.S. and Canada. The firm publishes a construction pipeline overview on a quarter basis. LE defines three stages in the construction pipline; Under Construction, Starts Next 12 Months and Early Planning.

The firm’s 4th Quarter 2010 report indicates that developers pushed a large number of their projects in the construction pipeline from a “scheduled start” back to early planning. As a result, the number of scheduled starts decreased 15% by projects and 13% by rooms quarter-over-quarter, while early planning saw an 8% project and 6% room increase.

In Q4 2010, few new projects started construction. This resulted in a historic low of 449 projects/53,991 rooms in the “under construction” stage, which now accounts for just 14% of all projects in the total hotel construction pipeline.

For 2011, LE is now projecting just 446 hotels/46,343 to come online, a gross growth rate of 0.9%. That’s a fall-off of over two-thirds from the cyclical highs in 2008 and 2009.  For 2012, the LE 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%.

Since banks are not likely to finance new construction until most of the “distressed loans” are cleared from their portfolios and the lodging industry’s operating performance has improved, construction activity will be subdued at least into 2012.

LE’s overview indicates that the construction pipeline for hotels is at its lowest level since Q2 2005, with 3,122 projects/372,813 rooms at the end of Q4.  With just 1,241 projects/151,435 rooms entering the pipeline in 2010, new projects are at a low not seen since 2004 and are expected to remain in a low  into 2012.

Scheduled starts in the next twelve months declined for an 11th consecutive quarter to 1,036 projects/112,459 rooms.

The following charts are taken from the firm’s latest executive summary.

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Posted by Scott R. Lodde

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