Industry Fundamentals

Report: New hotel supply still growing at sluggish pace

14 Aug, 2013 By: David Eisen

Hotel owners can breathe a little easier. Their investments aren't likely to be affected, too much, by new hotels coming on the scene to take a piece of the pie. That's according to Lodging Econometrics, which predicts new hotel openings of 739 projects/82,587 rooms for 2015, representing a growth rate for new supply of 1.6 percent.

LE calls the growth slow, moderate but steady and an improvement over 2011’s cyclical bottom of 346 projects/37,193 rooms. Despite these increases, the industry is still far away from the peak for new openings of 1,341 projects/154,258 rooms set in 2008.

The 2015 forecast is contingent upon two factors; that the hotels already in the pipeline continue to migrate forward at the quickened pace established, and that the current steady trend of smaller economy through upper-upscale new project announcements continue to flow into the pipeline.

At mid-year the total construction pipeline stands at 2,822 projects/350,151 rooms, a 4-percent increase for projects year over year. Projects under construction have been on the rise for eight quarters. At 646 projects they are up 23 percent YoY, while rooms at 81,531 are up 22 percent YoY. Projects expected to start in the next 12 months are up 36 percent at 1,116 projects. Rooms at 128,861 are up 38 percent and have been trending upwards for four quarters. However, projects in early planning are down 23 percent. Early planning currently stands at 1,060 projects/139,759 rooms. LE says this indicates that fewer luxury and upper-upscale resort and city center projects are entering the pipeline.

According to LE, smaller economy through upper-upscale projects predominate the pipeline. A disproportionately high volume of select-service projects is common at the beginning of each new real estate cycle, LE says, as the industry awaits a more complete recovery of the capital markets.

For development projects that have already selected a brand, the mid-year report shows that the upscale and upper-midscale chain scales combine for 75 percent of the projects in the pipeline and 71 percent of the rooms. A total of 574 Projects have yet to make a branding decision. When those decisions are formalized, history shows that 75 percent of those decisions will be in either upscale or upper-midscale brands, LE says.

While growth in the pipeline is sluggish by historic standards, LE believes that there is no real catalyst for development on the horizon. Due to the severity of the "Great Recession," compared to other lodging real estate cycles, this one appears destined to be prolonged a minimum of two extra years. Overall, development is likely to continue sailing against the wind into the second half of the decade.

LE’s Construction Pipeline Trend Report encapsulates all U.S. lodging development activity, with hotel project and room counts for the pipeline by stage (under construction, starts in the next 12 months, early planning).

Topic : Hotel Supply
External Source : Lodging Econometrics

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