Outlook - Pipeline : China+India Lead Growth

USA Construction Pipeline


OF ALL GLOBAL regions, Asia Pacific continues to exhibit the strongest recovery from the worldwide recession.

The fall-off was briefer and the rebound much faster compared to the rest of the world.

All three operating metrics for lodging—occupancy, average rate and RevPAR—show double-digit year-over-year (YOY) growth increases, the most dramatic improvements recorded anywhere.

As a result, every global franchise group with high-end brands has aggressive development programs and continues to see the region as having substantial potential into next decade.

After bottoming in Q4 2009, construction pipeline totals for Asia Pacific have grown for three quarters in a row and now stand at 2,009 projects/484,161 rooms. Growth patterns, however, are not uniform throughout the region.

China is the world’s third largest economy and the fastest growing. The country’s pipeline has been increasing for seven consecutive quarters, and has now surpassed the decade’s previous peak reached in Q2 2008. At 1,248 projects/336,349 rooms, China has the second-largest country pipeline in the world.

Most dramatically, with 986 projects/264,382 rooms, it has 35% of the world’s projects and 44% of rooms presently Under Construction. For perspective, China’s under construction numbers are larger than the entire pipelines of every other global region, except for the United States. In Q3, China has the largest number of construction starts in the world, and the second largest number of new projects announced into the pipeline, trailing the United States by a mere 887 rooms.

India is the world’s 11th-largest economy, and the second- fastest growing. At 454 projects/79,915 rooms, it has the third-largest pipeline globally and has been trending upward for three quarters. India is often mentioned in the same lodging growth conversation as China, but pipeline scale is quite different, as India’s project count is only 36% of China’s and, by rooms, just 24%.

As lodging development continues at an accelerated pace in China and India, concerns about these economies are rising. Fueled earlier by massive government stimulus and directed lending programs, China’s recent increase in interest rates and its six attempts to expand banking reserves during the year have not yet successfully cooled the economy.

Asia Pacific Construction Pipeline

Asia Pacific highlights
After seven consecutive quarters of growth, China’s new project announcements into the pipeline are also at new highs. With 215 projects/41,387 rooms, it is the second highest amount in the world for Q3.

Apart from the United States, one would have to combine new project announcements from rest of the world to rival the count in China.

With an astonishing 79% of total pipeline projects and rooms already under construction, China’s new openings are scheduled to exit the pipeline at accelerated rates.

China will have the highest number of rooms opening up annually through 2012 of any country worldwide. LE’s forecast for new hotel openings expects 765 hotels/116,465 rooms to open in 2010, with 449 hotels/92,830 rooms in 2011 and 290 projects/93,353 rooms in 2012.

India’s total pipeline has reached 454 projects/79,915 rooms following three straight quarters of rising counts. As in China, global hotel companies are flocking to India. Some companies with predominantly upscale and mid-market brands have embarked on strategic ventures with local developers to accelerate their growth plans.

While China and India generate enormous development enthusiasm, they generally mask the fact that Southeast Asia and other areas have flat or slowing pipeline growth.

Outside of China and India, aggregated pipeline growth in the remaining countries has been in decline for seven consecutive quarters since the peak in Q4 2008. Pipeline counts in these countries are likely to continue to decrease in the upcoming quarters. New project announcements into the pipeline will remain in a low channel. A sizeable 59% of projects are currently under construction, much of which will exit the pipeline as new hotel openings through 2012. Many projects are large, luxury, upper upscale and upscale properties in central business districts and resorts, with a majority located in the Southeast in countries like Thailand, Vietnam, Indonesia, and Malaysia.

Europe, Middle East & Africa New Openings


Europe highlights
Concerns about economic contagion are spreading throughout Europe, first in Iceland, Greece, the UK and Ireland, and now perhaps in Portugal, Spain and maybe Italy.

As a result, governmental spending policies have turned austere and near-term economic growth is slowing considerably. For perspective, 23 of the 25 largest European economies are forecasted to grow at a rate slower than that of the United States in 2011. As anticipated, developer sentiment has cooled noticeably.

The total European pipeline stands at a cyclical low of 697 projects/117,964 rooms and is expected to trend downward through 2012.

Within the pipeline, projects under construction have been in a six-quarter bottoming formation while projects scheduled to start construction in the next 12 months have reached a new low.

Within Europe, the UK accounts for 26% of all projects in the region’s pipeline. Russia, Germany and Spain follow at a distance. London has by far the largest city pipeline with 35 projects/7,386 rooms. Edinburgh and Manchester are also in Europe’s top 10 cities.

USA New Openings

Middle East highlights

The Middle East total pipeline stands at 422 projects/113,680 rooms, down from the Q208 peak of 566 projects/164,259 rooms.

Together, Dubai and Abu Dhabi account for 35% of the projects and 40% of the rooms in the pipeline.

The sovereign debt crisis caused a serious slow down in construction projects in Dubai and, to a lesser extent, in other countries as well.

Many developers experienced a liquidity crisis and were unable to access capital to either start planned projects or maintain existing construction project timelines, many of which slowed to a near halt. New hotel openings fell off significantly in 2010 to 46 projects/13,443 rooms but should accelerate between 2011-2013 as lending stabilizes.

At 69%, Dubai has a very high 54 of their 78 pipeline projects presently under construction. Abu Dhabi has 41 of its 69 projects under construction, or 59%. Pipeline metrics indicate that the decade-long development surge in the Middle East has run out of steam. Projects scheduled to start construction in the next 12 months are at cyclical lows.

USA highlights
The construction pipeline is at 3,221 projects/386,656 rooms as of the end of Q3 2010. Pipeline totals continue to decline and are now at their lowest level since Q3 2005, however the rate of decline has recently moderated. Under construction totals, at 487 projects/62,041 rooms, represent just 15% of projects and 16% of rooms, and are the lowest since the 1990’s.

Totals for projects scheduled to start construction in the next 12 months, at 1,218 projects/129,356 rooms, have also continued to decline and are at a low not seen since Q4 2004.

Totals for early planning have remained somewhat constant, as these projects are generally larger, are in both urban centers and resort destinations and sometimes have mixed-use components. For the foreseeable future, the total construction pipeline is expected to continue trending downward, albeit at a slower pace.


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