PwC Expects Room Boom To Begin Anew In 2004

NATIONAL REPORT— After four years of year-over-year declines, new construction of hotel rooms will post an increase in 2004, with more than 88,000 new rooms beginning construction, according to a prognosis by PricewaterhouseCoopers (PwC). As perceived by Bjorn Hanson, leader of the Global Hospitality & Leisure Industry team with the New York-based industry consulting giant, significant additions to the construction pipeline are expected to begin in just about two years, with the number of lodging room-starts is expected to increase by 40% over 2003. PwC projections similarly maintain lodging demand— which began to show year-over-year improvements in the third quarter of 2002— is forecast to increase by 2.5% in 2003 as compared to 2002. It was contended the period of restricted supply growth, combined with the duration of the new construction, will allow the industry a period of approximately four years of low levels of supply growth. As such, it was estimated the industry will have two years from the beginning of the current recovery in demand and the first meaningful increase in room supply due to the new construction. As explained to HOTEL BUSINESS®, although the 2004 percentage increase of the number of room-starts is large, 2003 developers and lenders are anticipated to remain cautious, with lodging room-starts expected to increase only 1.9% this year when compared to a decline of 32.8% in 2002. In 2002, PwC said there were 62,000 room-starts— the lowest level of new construction since 1994, and approximately half the 138,000 annual room-starts that occurred between 1996 – 2000, the peak years of the last construction cycle. It was noted by PwC that declines in room-starts compared to prior-year levels began in the fourth quarter of 1998 and have persisted, and the second quarter of 2003 is expected to be the 19th consecutive quarter of year-over-year declines in lodging room-starts. According to PwC calculations, the number of lodging room-starts— which totaled only 28,000 rooms during the 1991 low of the last lodging recession— reached a peak of 160,000 rooms in 1998. However, it was further claimed that due to the seasonal nature of construction, the trough (or low point) is expected to occur in the first quarter of 2003 when some 14,600 hotel rooms enter construction.