Lodging Econometrics 2011 EMEA Lodging Outlook Report
The sovereign debt crisis, budget cutbacks and rising inflation continue to weigh heavily on much of Europe and will keep economic growth subdued at least into 2012. Uncertainty is particularly high in Ireland, Spain, Portugal, and Italy. In the United Kingdom, an unexpected drop in GDP to -0.6% in Q4 2010 has triggered apprehensions about a double-dip recession. Fears of increased energy and commodity prices in the wake of the recent turmoil in the Middle East and Northern Africa are impacting as well. Overall economic insecurity, combined with lackluster lodging operations, will continue to dampen developer sentiment.
Europe’s Total Construction Pipeline, at 754 projects/123,714 rooms at the end of Q4, has been in a bottoming formation for seven consecutive quarters. New Project Announcements (NPAs) into the Pipeline remain in a low channel at 117 projects/14,058 rooms, and Construction Starts for projects already in the Pipeline, at 75 projects/9,492 rooms, are at their second lowest level reported in three years. As more budgetary reductions are enacted, construction financing still difficult to obtain and just modest improvements in lodging operations anticipated, these development metrics should decline further into 2012.
Along with its own sovereign debt, investment and banking issues, the Middle East and Northern Africa are now contending with explosive political unrest in many countries. This does not bode well for future development in the region, where Pipeline counts have already been in decline for 10 straight quarters. At the end of Q4, the Total Middle East Pipeline stood at 420 projects/113,622 rooms, the lowest LE has recorded in three years. The flow of NPAs into the Pipeline is still sluggish, with just 28 projects/8,897 rooms announced in Q4. Constructions Starts are at a three-year low, with only 18 projects/4,333 rooms getting underway in the quarter. With the recent upheavals, travel to the region is expected to decrease sharply, negatively impacting lodging demand and profitability. Absorbing new supply that previously came online will become even more difficult, especially as New Hotel Openings rise through 2012. LE expects a serious slowdown in new hotel development, with NPAs and Construction Starts for projects already in the Pipeline falling to new lows. Cancellations and Postponements are likely to increase.
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