Hotel Pipeline Narrows As Demand Slips
The global hotel construction pipeline is down 6 percent amid declining demand and an expected upcoming two years of hotel openings at decades-high levels, according to Lodging Econometrics Global 2009 Hotel Pipeline Report released today.
The report, which covers the construction pipeline through the third quarter of 2008, indicates that the number of projects under construction dropped by 6 percent from the second quarter of 2008 both in terms of projects and rooms. Total projects in the pipeline dropped from 10,781 to 10,169, and total rooms dropped from about 1.82 million to about 1.71 million, according to the report.
The Asia/Pacific region saw the sharpest drop in projects under construction, down 11 percent from 2,226 projects to 1,990 projects. The Caribbean, Mexico and Central America had the sharpest drop in number of rooms, down 10 percent from 65,115 rooms to 58,771 rooms. The U.S. pipeline had a 4 percent decrease in projects and a 6 percent decrease in number of rooms.
Lending difficulty has been a large factor in the pipeline reduction, particularly in major cities, financial cities and resort areas, while small and midsize projects have seen less of an impact, the report showed. In addition, while demand is expected to decrease for the next several quarters, hotel openings are expected to be at peak levels in the next two years, with 2,804 hotels or 425,615 rooms opening this year and 2,664 hotels or 447,364 rooms opening in 2010. This also is encouraging developers to pull back on building new projects.
New project announcements, in fact, have dropped by 57 percent since their peak level in the fourth quarter of 2007. "Many developers have moved to the sidelines to wait for the economy to rebound, lending to return and consumer confidence and business profitability to improve," according to the report.
Construction starts in the quarter also were at less than half the level they were at their peak in the fourth quarter of 2007. Similarly, the number of project cancellations has doubled in that period.