"Since the peak in the second quarter of last year, it's been going down quarter over quarter and we expect it to continue to go down for some time yet," Patrick Ford, president of Portsmouth, NH-based LE, tells GlobeSt.com.
LE's pipeline includes construction starts, cancellations/postponements and new project announcements. For the fifth consecutive quarter, cancellations/postponements rose to a worldwide total of 975 projects/158,873 rooms. Of that, 23% were already under construction, and a sizable portion were larger properties in the luxury, upper-upscale and casino segments, which are the most difficult to finance at this time.
"Because of lending difficulties and declines in hotel operating statistics, developers are not anxious to be announcing new projects any time soon," Ford states. "We are going to be at a bottoming formation for a number of quarters until someone says there's reason to believe the economy is going to change, and lending problems get solved."
More than 54% of the projects in the pipeline are in the US, where LE counts 4,918 projects and 619,431 rooms. That represents a respective drop of 16% and 21% from the Q2 '08 peak. Next up is Asia Pacific, which makes up 20% of the total pipeline, with 1,826 projects/423,758 rooms. Further, Asia is home to three of the world's top 10 country pipelines: the People's Republic of China (number two), India (number three) and Thailand (number 10). Europe follows at 912 projects/153,189 rooms, with 10% of worldwide projects and rooms.
Nearly 80% of the world's projects are sized 200 rooms or less. Approximately 36% of total branded projects are in the midscale without food & beverage segment, with another 26% being upscale. Unbranded or independent development totaled 2,145 projects/428,775 rooms.
Ford relates that while the US is seeing more development in the midscale sector, China is home to larger projects that are being built in anticipation of Expo 2010, which will be held in Shanghai. "There is a flurry of large urban center hotels in the pipeline that are going to be coming on line later this year and next year in major markets in China," Ford says. "China is an enormous growth market."
In contrast, in the US and Europe, lending "has dried up," Ford says. Smaller community banks are the only institutions lending today, which means only modestly sized projects can get financed in the US.
Worldwide, a total of 542 new hotels/74,171 rooms opened in the first quarter. LE forecasts that 2,774 projects/398,391 rooms are on track to open in 2009, with 41% of those new guest rooms in the United States and 24% in the People's Republic of China. Next year 2,428 hotels/410,500 rooms will open. In 2008, 2,890 hotels with 402,660 rooms were delivered.
"The pipeline will decline because new openings are coming on line pretty strongly," Ford says, adding that a slump in new supply can only aid the industry in the short and long term. "The recovery is going to take some time at the operating level of existing hotels," he explains. "Therefore, fewer hotels into the pipeline today can only mean much better things in 2011, 2012 and 2013."
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