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The total Pipeline
appears to have reached its peak, as project and room counts have held
steady for the past three quarters. Those to Start Construction in the Next
12 Months, 93 projects/11,649 rooms, and those in Early Planning, 83
projects/9,975 rooms, are at highs for the cycle. Meanwhile, the totals for
Under Construction, 89 projects/12,340 rooms, are down from the cyclical
peak established in Q2 2007.”
Several Factors Have Developers Becoming Cautious
Certain dynamics have aligned to cause developer caution. The Bank of Canada
instituted three consecutive decreases to its key interest rate since
December 2007, down a quarter-point in both December and January, then a
further half-point in February, indicating concern about a slowing in the
economy. Hotel operating statistics were strong in 2006 and 2007, however, a
continued decline in visitors from the United States due to the low US
Dollar, higher gasoline costs and reductions in discretionary spending,
along with indications that domestic travel is apt to decline as well, mean
that guestroom demand is likely to soften moving forward.
With these emerging concerns, it appears that hotel developers are taking a
cautious approach for the moment. The number of New Projects announced into
the Pipeline, 15 projects/2,038 rooms in Q1 2008, represents a 58.3%
decrease from Q4 2007 for both projects and rooms. It is the smallest count
seen in over three years.
Construction Starts for Q1 2008 totaled just 9 projects/1,329 guestrooms.
Although first quarter Construction Starts are historically slower than the
rest of the year, the counts for Q1 2008 are at a very low level. Projects
already in the Pipeline are proceeding at a sluggish pace, with projects
backlogged in the Scheduled Starts and Early Planning stages, suggesting
that developers are more conservative and taking a wait-and-see approach.
LE’s Forecast for New Hotel Openings
LE’s Forecast for New Hotel Openings estimates that 82 projects having 9,554
rooms will come online in 2008, while 88 projects/10,807 rooms are slated
for 2009, with 12,340 rooms already Under Construction. This represents a
gross growth rate of 3.5% and 3.8%, respectively, before any guestrooms are
removed from inventory. Net New Supply grew 2.0% in 2006 and 1.9% in 2007.
Currently, The Pipeline, growing throughout the decade, is beginning to
unfold just as demand is modestly starting to soften.
Development is Concentrated in Key Markets
Of the 33,964 rooms in the total Pipeline, only 16% of those rooms are
full-service, with 57% in the select or limited service segments. Another
27% is currently designated as Independent. Approximately 70% of those rooms
in the Independent segment will choose a brand prior to opening, mostly in
the select and limited service category.
The bulk of hotel development is in the Central and Western regions. Ontario
leads the Central provinces in terms of pipeline counts, with 94
projects/14,072 rooms, while Quebec has 25 projects/3,800 rooms. In the
Western Region, Alberta, with 61 projects/6,457 rooms, and British Columbia,
with 44 projects/5,430 rooms, have the largest provincial pipelines.
Ten markets have the significant share of the Pipeline. In these markets,
there are 123 projects/18,902 rooms, or 56% of the total Pipeline. In
Ontario, Toronto leads with 34 projects/5,946 rooms, with Niagara Falls
second at 13 projects/3,013 rooms. In Quebec, Montreal’s pipeline stands at
11 projects/1,786 rooms. For the Western Region, Vancouver, at 19
projects/2,628 rooms, Edmonton, at 13 projects/1,526 rooms, and Calgary, at
10 projects/1,486 rooms have the largest pipelines. All other markets have
six or fewer projects.
Global Brands Lead the Way
Global brands currently make up 72% of projects within the total Pipeline.
InterContinental leads with 55 projects/5,626 rooms, with 40 Holiday Inn
Express’ and 9 Holiday Inns. Marriott International has 28 projects/4,115
rooms under development, 15 of which are Residence Inn and Fairfield Inn
properties. Hilton Hotels follows, with 24 projects/3,701 rooms, then
Starwood Hotels & Resorts with 15 projects/3,021 rooms. Super 8 accounts for
31 projects/2,184 rooms of Wyndham Worldwide’s total pipeline, most of which
are being developed by master franchisor, Superior Lodging Corporation.
It’s a Time of Transition
After rapid growth mid-decade, the Construction Pipeline may be at its
cyclical peak. The economy appears to be moderating and lodging demand
slowing, yet New Openings flowing from the Pipeline will be accelerating
throughout 2008 and 2009.
Developers have sensed the economic transition and turned cautious, as both
New Project Announcements and movement within the Pipeline are slowing. It’s
early in the transition. More time will be required to assess trends for the
near term.
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