Lending Crisis Impacting New Openings - LE Revises Forecasts Lower
In its revised forecast for 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. New Openings peaked for the cycle in 2008 at 1,345 hotels/154,667 rooms.
LE's forecasted declines for 2010 represent a steep drop-off from earlier fore¬casts and are a result of the near-disappearance of lending. The flow of lend¬ing from local community banks that previously serviced new projects up to 150 rooms closed down to a near trickle during the second half of 2009.
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Projects under construction, at 767 projects/95,900 rooms in Q4, are at the lowest level recorded in over four years and are expected to continue to fall throughout 2010. The forward migration of pipeline projects towards construction, termed construction starts, is at 119 projects/11,623 rooms in Q4 2009, the lowest totals since early 2002. Active projects in the pipeline are stalled because developers have little idea when they will be able to locate financing so they can begin construction.
Project cancellations and postponements remain at historical highs. Meanwhile, new project announcements that replenish the pipeline, at 308 projects/33,442 rooms in Q4, 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 lodg¬ing real estate and developers' viewpoints about the slow and uneven operating recovery that lies ahead. While franchise 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.
Viewed another way, all of this is good news for the industry. Drop-offs in the pipeline and acute declines in LE's Forecast for new hotel open¬ings means that the future absorption of new supply will be far less of a head wind than previously thought as the industry awaits economic recovery, an increase in business and leisure travel and for its pricing power to return.
United States Pipeline Overview
The total US Pipeline stands at 3,563 projects/430,460 rooms at the end of Q4, marking the sixth consecutive quarter of declining counts. Compared to the Q2 2008 peak, projects are off by 39% and rooms by 45%.
While counts in all construction stages have fallen, the impact of the lending crisis is most apparent in Under Construction. The lack of lending has cre¬ated a massive roadblock for forward project migration towards construction. This, combined with recent high rates of New Hotel Openings, elevated can¬cellations and reduced New Project Announcements into the Pipeline, has depleted Under Construction counts substantially. At 767 projects/95,900 rooms in Q4, counts are at their lowest since Q1 2005 and down 55% by projects and 60% by rooms from the Q2 2008 peak. Total Under Construction numbers also declined significantly quarter over quarter, with projects falling by 19% and rooms by 26%.
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About Lodging Econometrics
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.
