Hotel pipeline in EMEA hits cyclical low

EUROPE, MIDDLE EAST AND AFRICA The topping-off period for new hotel openings in Europe, the Middle East and Africa has mostly been completed, as Lodging Econometrics revises its pipeline figures downward.

Lodging Econometrics expects 322 hotels and 67,680 guestrooms to open in EMEA in 2012, while a revised 322 hotels and 56,602 guestrooms are scheduled to open by the end of this year. Next year’s opening projection for the region is 296 hotels and 58,301. After 2012, the pipeline will substantially empty itself of new construction projects, LE predicts.

Impacted by the global recession, the total construction pipeline for EMEA decreased for the eighth quarter in a row to 1,307 projects and 268,478 rooms in the second quarter. Construction financing remains very difficult to obtain, as banking is still in the early stages of recovery. The pipeline will continue to decline into mid-decade, as projects already under construction and new project announcements into the pipeline have been at a cyclical low for more than a year.

Although down from the peak in 2008, new hotel openings in Europe are in the midst of a three-year plateau. Approximately 167 hotels and 31,657 guestrooms are projected to come online in 2012, preceded by 216 hotels and 31,658 guestrooms in 2010 and 180 hotels and 29,500 guestrooms in 2011. About 62% of Europe’s projects will exit the pipeline by the end of 2012.

The forecast for new hotel openings in the Middle East has been adjusted substantially downward. Originally scheduled to open earlier, many projects have slowed and are now being pushed outward. In 2012, 111 hotels and 28,498 guestrooms are expected to come online. In 2010, 59 hotels and 15,558 guestrooms are now expected to open, while 2011 will see 76 hotels and 21,141 guestrooms open. Delayed by the lack of available financing for completion, project and guestroom count decreases from LE’s earlier forecast range from 22% to 28% per year. Still, the flow of new openings ahead is almost certain to create an overbuilt condition, outpacing the anticipated rate of demand growth in the region.

New hotel openings in Africa are in the midst of a three-year plateau that will deplete the region’s pipeline and effectively draw the current development cycle to a close. LE’s forecast expects 44 hotels and 7,225 guestrooms to open in 2012, preceded by 40 hotels and 7,660 guestrooms in 2011. In 2010, a total of 47 hotels and 9,386 guestrooms will come online. Approximately 70% of total projects in the pipeline will exit through 2012.

Europe’s total pipeline is now at 721 projects and 121,933 guestrooms. The UK has the region’s largest, with 207 projects and 29,353 guestrooms, making it the fourth largest pipeline in the world. About 28% of the UK’s total pipeline guestrooms are in London, which has seen an uptick in development as the city prepares to host 2012 Olympics. Germany has a strong pipeline, with 71 projects and 15,766 guestrooms. Driven largely by exports, Germany’s GDP is growing at its fastest pace since the reunification and at a quicker rate than any other country in Europe.

At 427 projects and 116,043 guestrooms, the Middle East total pipeline is at the lowest level since early 2007. Dubai’s pipeline, with 83 projects and 26,111 guestrooms, is declining rapidly but still has the fifth largest in the world. A late starter in the last development cycle, Abu Dhabi, with 67 projects and 21,187 guestrooms, is the seventh largest pipeline. For both, the ongoing devaluation process and the restructuring of balance sheets for governmental entities and banking institutions has seriously curtailed credit.

In effect, the building cycle is now near an end. Projects already in the ground have slowed considerably and are awaiting additional financing for completion. Other projects will either remain stalled in the pipeline or eventually be cancelled. New project announcements into the pipeline will be minimal into mid-decade as the property market seeks stabilization.

Hotel transactions in Europe have begun to show signs of revival, according to LE’s recent transaction trends report. LE monitored 27 significant transactions in the first half of 2010. Twenty-two, or 82%, involved hotels located in just five countries: the UK, France, Italy, Germany and Finland. About 41% of sellers were primarily private owner-operators, while 22% were public hotel companies. UK-based companies and investment groups made 16 of the 27 purchases. Buyers were mostly private companies, accounting for 23, or 85%, of these transactions.