Only 211 New Projects in First Quarter
With fewer projects Under Construction, the rate of New Hotel Openings has slowed. Just 72 hotels/9,051 rooms came online as new supply in Q1 2011, marking the first time in the current cycle that quarterly New Openings have fallen below 100 hotels and 10,000 rooms. LE has decreased its Forecast for New Hotel Openings slightly, with just 408 hotels/44,035 rooms now expected to open in 2011, and 424 hotels/45,834 rooms, representing supply growth of between 0.7%-0.9% each year.
In Q1 2011, there were only 211 New Project Announcements, with a total of 28,641 rooms. Since their pre-recession peak in 2007, the number of NPAs has been insufficient to offset New Hotel Openings and the cyclically high Cancellations and Postponements that came in the wake of the credit crisis. The decline in NPAs is expected to continue. As a result, Pipeline totals will drift lower and, in turn, New Hotel Openings will set new cyclical lows through the middle of the decade.
With lower levels of new supply ahead, hotel operators will see a very promising scenario develop going forward. Thus far, lodging demand has yet to pick up to desired levels, and operating metrics (occupancy, average room rates and RevPAR) have only improved modestly. When the overall economy gains greater momentum and consumer spending bounces back more fully, demand will recover at a faster pace. Room rates, and thus profitability, will then accelerate forward, especially as there will be no supply headwinds to overcome. Demand growth is the key to industry-wide improvement.
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