The News: Hotel Construction Pipeline Shows Decline

The global economic slowdown and greater difficulty in financing hotel development has translated into a diminishing hotel development pipeline. According to a Lodging Econometrics report, the total global construction pipeline declined 6 percent to 10,169 projects and 1.7million rooms during the third quarter of 2008. The second quarter represented the pipeline’s peak, and all regions reached cyclical peaks in the second quarter of 2008, except for Canada, the Caribbean, Mexico and Central and South America, which reached their peak in the first quarter of last year.All regions declined from the second quarter to the third. The report cited a number of factors, such as the global recession, decreases in hotel operating performances and cutbacks in both leisure and business travel.Of course, lending for hotel projects has diminished greatly. According to the report, large projects in major cities, financial centers and resort areas are the toughest to get financed. Smaller to midsize hotel projects have not been hit quite so hard, but loan amounts are smaller and much more restrictive.As a result, announcements of new projects have fallen dramatically. The third quarter of 2008 saw 843 projects—a decline of 57 percent from the cyclical peak, reached during the fourth quarter of 2007—and 121,068 rooms—a decrease of 71 percent.With declining hotel fundamentals and lending so tight, the great majority of hotel developers are sitting this one out for the time being.