Slowing Development Pipeline Bodes Well for Hotel Industry

PORTSMOUTH, NH-The hotel development pipeline seems to nearing a “bottoming” according to Lodging Econometrics, a hotel industry research firm, in its third quarter Guidance Memo. The lack of development will set the stage, reports the locally based firm, for increased development activity either late next year or early 2004.

“Its good news,” Peter Gluckler, vice president of marketing for the firm, tells GlobeSt.com. “It gives the hotel industry a chance to catch up.” The lodging sector was hit hard over the past year and a half, first by the economic recession and then by the Sept. 11 terror attacks.

The report indicates that the project count for the total development pipeline–which includes all hotels under construction, those scheduled to start in the next 12 months and those in early planning–declined by 99 or 4% in the third quarter of the year. This is the first time the count dropped below 2,000 projects. The total room count declined 2.9% to 272,531 rooms, which is 22% lower than the same period last year.

Patrick H. Ford, president of Lodging Econometrics, points out that “the continuing declines virtually guarantee that net new guestroom additions will be near a 1.5% low in both 2003 and 2004. That is good news for the industry which is still recovering from the recession, the effects of 9/11 and restrictive business travel policies.”

The report further indicates that only 176 new projects having 16,294 rooms exited the pipeline and opened in the third quarter of the year, the fewest for the cycle. Estimates are that between 82,000 and 84,500 total rooms will open this year with new openings below 80,000 rooms likely for the next two years.

Some developers are not rushing to complete projects already started and are not hurrying to start construction on new projects. 52 projects were reclassified backwards from starting in the next 12 month to early planning, “either for reasons of economic uncertainty, or because of difficulty in locating attractive financing.”

Gluckler notes that the fact that these projects are being classified backwards is significant as an indication that developers are taking a “wait and see attitude. They are giving the industry a chance to recover and absorb some of the new rooms that came on the market.”

The report specifies that of the 12 largest markets likely to lag behind recovery, Boston along with Miami, Chicago, Seattle and San Francisco are considered “as being of greatest concern.” Gluckler says that because of the new convention center currently being built along South Boston’s waterfront as well as the construction of the central artery as part of the Big Dig, a lot of hotel rooms are being built in Boston. On top of that, the business economy is still struggling, with vacancy rates for office space rising, making business travelers a less reliable market to absorb the rooms.