PORTSMOUTH, NH— A continuing slowdown in the rate of new hotel development is setting the stage for the recovery of the lodging industry, according to a report released by Lodging Econometrics (LE) here. In its 2Q02 quarterly Guidance Report to its Wall Street analysts and corporate clients, LE reported the number of rooms in the total development pipeline has dropped below 300,000 for the first time in this cycle, and is now down 49% from the high reached in the third quarter of 1998. “This is further evidence that— for 2003 and 2004— new supply additions to the nation’s guestroom inventory will be well below 2%,” maintained LE President Patrick Ford. “This substantially increases the potential for an accelerated improvement throughout the industry once the economy picks up momentum, guestroom demand recovers more completely, and the ability to improve room rates returns,” he said. At the end of the second quarter, the pipeline reportedly contained 2,053 projects and 280,738 rooms, which includes those under construction, those scheduled to start in the next 12 months, and those in early planning. Quarter-over-quarter declines were said to have occurred across all stages of development and chains scales, what with guestrooms under construction seen as falling 9.8% for the quarter, while those scheduled to start in the next 12 months ostensibly dropped 4.1%, and those in early planning purportedly declined 12.4%. On a percentage basis, the greatest chain scale declines were found to be in the upper upscale, midscale with food-and-beverage, and economy segments, which were claimed to have fallen 11.2%%, 22.7% and 20.8% respectively. Additionally, only 222 new-development projects— accounting for 27,725 rooms— were announced in 2Q02, allegedly making it the smallest quarterly growth rate this cycle. Identified to be exiting the pipeline in the quarter were new openings of 227 projects with 26,429 rooms. This, coupled with a reputed 198 projects with 27,352 rooms that were either cancelled or put on hold by developers, was said to have resulted in an overall decrease of 203 projects with 26,056 rooms, or an 8.5% decline in the total pipeline for 2Q02. “Hotel developers continue to be concerned about the slow pace of the recovery, risk averse lenders and difficulty in obtaining appropriate ROI.s in their planned projects,” said Ford. Accordingly, it was contended development pipelines declined in 19 of the 25 major markets, but in those cities where they occurred, the increases were felt to be of little significance. LE market analysts further pointed to Chicago, Boston, Orlando, Miami, San Francisco, Seattle and New Orleans as areas of greatest concern, since all either have higher than normal recent supply additions to absorb or will have new supply coming on line in the next six months. As such, these markets were picked as likely to lag behind the industry’s recovery.
