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LONDON-Paced by the United Kingdom, Europe is set for a record run of hotel room openings this coming year, but anyone fearing a stampede of inventory could find comfort in the tightening credit markets, according to a regional overview by Lodging Econometrics. LE president Patrick Ford terms conditions “ideal” for the fresh inventory, which will exceed 45,000 rooms in 2008 alone.
“The capital cities have been experiencing robust hotel occupancies,” Ford explains, “and many have enjoyed double-digit, year-over-year room rate increases in 2006 and again in 2007, strong indications of a shortage of guestrooms in many markets.” London has seen dramatic price accretion, and developers have responded rapidly. With a total pipeline of 277 projects and just over 40,000 rooms, the UK has 2.5 times as many units planned as the next closest European country, that being Spain. Nearly one-third of the UK rooms are being built in London, says LE, which attributes that to the city's emergence as a global financial powerhouse and international hub of tourism. Other top areas experiencing substantial hotel room growth are Germany, Russia and Italy, with 15 major European cities pursuing between 10 and 20 actual projects.
New hotel openings should peak across Europe in 2008 and 2009, says LE. The UK has 8,500 rooms opening in 2007, compared to Spain's 4,500 and Germany's 3,300, but that rate will be easily eclipsed in 2008 when almost 12,000 rooms will go on line in the UK, followed up by another 14,600 there in 2009. Spain will spike to 6,400 next year before easing to half that rate in 2009. Russia has 45 projects and 10,800 rooms queued up, of which nearly 1,600 will come on in 2007 before that rate surges to 2,600 and nearly 3,400 in 2008 and 2009, respectively.
In the review, Ford advises that prospects for overbuilding will grow weaker the longer the credit crunch lingers, with lenders expected to be more selective and mandating increased equity. “The impact on the existing pipeline will be a modestly higher than normal flow of project delays, and perhaps cancellations for more marginal projects,” he says. Given the potential roadblocks going forward, Ford says the unprecedented arrival of rooms is “fortuitously timed,” especially for those owners holding a limited number of keys should future product be stunted.
The LE overview denotes heavy interest amongst multi-national hotel developers and operators aiming to expand their presence throughout Europe. InterContinental Hotels has been the most aggressive, sporting nearly 7,000 rooms under way with another 6,600 slated to break ground next year. The firm's total European pipeline stands at nearly 16,500 units in 117 projects. Accor is second with 97 projects and 13,150 rooms, followed by Rezidor at 7,900 rooms. Marriott, Starwood and Hilton are active players as well, says LE, which adds that countries such as Austria, the Czech Republic, Portugal and the Netherlands are among the markets being explored by top brands.
Another trend of note to LE is a desire among hotel operators to ease plans to build four- and five-star hotels in gateway cities in favor of mid-priced, moderately sized and specially cast alternatives in tertiary European markets. “These smaller projects are ideal growth vehicles for gaining market penetration and capturing market share rapidly,” says Ford, explaining that such ventures can benefit from shorter permitting and development horizons, plus lower land and construction costs. Institutional players are identifying local developers to deliver multiple projects, adds Ford, with a range of brands being rolled out throughout Europe, including Doubletree, Hampton Inn and Homewood Suites. Newly created flags being introduced there include aloft by Starwood Hotels and Staybridge Suites, an InterContinental Hotels concept.
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