Lodging Econometrics: New hotel construction down in 2010

Lodging Econometrics predicts that just 717 hotels, representing 82,620 rooms, will open in 2010. This is a 56% drop from 2009, when 1,301 hotels with 146,929 rooms opened. The new openings peak for the cycle was 1,345 hotels/154,667 rooms recorded in 2008.

Lodging Econometrics predicts that just 717 hotels, representing 82,620 rooms, will open in 2010. This is a 56% drop from 2009, when 1,301 hotels with 146,929 rooms opened. The new openings peak for the cycle was 1,345 hotels/154,667 rooms recorded in 2008.

LE’s forecasted declines for 2010 are steep and are a result of the disappearance of lending. The flow of lending from local community banks that were previously servicing new projects up to 150 rooms has closed down to a near trickle at the end of 2009.

In Q4 2009, projects under construction are the lowest totals recorded in over four years, now at 767 projects/95,900 rooms, a figure that is expected to continue to fall throughout 2010. Forward migration of pipeline projects towards construction, termed construction starts, is recorded at 119 projects/11,600 rooms in Q4 2009, the lowest totals since early 2002. Active projects in the pipeline are stalled because developers have no idea when they will be able to locate financing.

Cancellations and postponements remain at historical highs. Of particular note are the 160 projects in 2008 and the 190 projects/34,362 rooms in 2009 that were already in the ground that ceased construction.

Finally, new project announcements that replenish the pipeline, at 308 projects/33,442 rooms in Q4 2009, have fallen to five-year lows.

The robust development cycle of the last decade is drawing to a precipitous close as a result of the near total disappearance of lending for lodging real estate and the slow and uneven operating recovery that lies ahead. While franchising development teams refocus on growing conversion opportunities in the United States, they are also targeting late cycle development opportunities in certain global hot spots like China, India and Brazil.

There’s good news for the industry. The declines in the pipeline and in LE’s Forecast for New Hotel Openings means that the absorption of new supply will be far less of a head wind for the industry as it awaits the recovery of demand and for its pricing power to return.

Lodging Econometrics (LE) is the foremost source of global market and competitive set intelligence, as well as customized business development and target account programs for hotel franchise companies, management groups, investment firms, and consultants.