U.S. new hotel openings to be at cyclical lows in 2011, ’12

UNITED STATES Construction financing will remain difficult to attain in 2011, and lodging operating metrics will improve, but at a relatively slow pace. As a result, hotel developers are delaying projects that were to start this year.

Scheduled U.S. hotel project starts have decreased 15% by projects and 13% by guestrooms quarter-over-quarter, while early planning saw an 8% project and 6% guestroom increase, according to Lodging Econometrics. In the fourth quarter of 2010, few new projects started construction, resulting in a historic low of 449 projects and 53,991 guestrooms under construction.

New hotel openings will remain in a bottoming trend over the next three years, as the pipeline continues to recede, LE says. For 2011, LE is now projecting just 446 hotels and 46,343 guestrooms to come online in the United States, a gross growth rate of 0.9%. That’s a drop of more than two-thirds from the cyclical highs in 2008 and 2009.

For 2012, LE’s forecast calls for 487 hotels and 48,860 guestrooms to exit the pipeline as new supply. In 2010, 635 new hotels and 70,849 guestrooms opened—just half of what opened in 2009—resulting in a supply growth rate of 1.5%.

Banks are not likely to finance new construction until most of their “distressed loans” are cleared from their portfolios and the lodging industry’s operating performance has improved. To increase profitability and asset value, occupancy, which showed only incremental increases during the second half of 2010, must make more substantial gains to drive up ADR. Developers will likely be entrenched on the sidelines, and construction activity will be subdued at least into 2012.

The total U.S. construction pipeline is at a new cyclical low of 3,122 projects and 372,813 guestrooms as of the end of the fourth quarter. Totals will drift further downward for the foreseeable future, as the unavailability of lending continues to curb new project announcements. With just 1,241 projects and 151,435 guestrooms entering the pipeline in 2010, new projects are at a low not seen since 2004 and are expected to remain in a low channel into 2012.

Construction starts are another casualty of scarce financing. For projects already in the pipeline, they reflect the rate of project migration forward towards construction. Only 422 projects and 45,696 guestrooms were recorded in 2010, a low not seen in more than a decade.