Second record-breaking profit year in a row
Lodging Econometrics, a hotel real estate forecasting firm, estimates 917 hotels with 100,559 guest rooms will open in 2007 nationwide, the highest total for new openings since 2001, but far removed from the peak set in 1998 when 1,532 hotels with 156,471 rooms opened.
Because the supply increase forecasted for 2007 is modest - just 16,101 more rooms than 2006 - and because the industry has already seen 26 consecutive months of improved demand, which is expected to continue well into the expansionary phase of the present cycle, 2007 is on track to become the second record-breaking profit year in a row.
It's expected to exceed the record $26 billion anticipated for 2006, said Patrick Ford, president of Lodging Econometrics in Portsmouth, N.H.
"We're still too early in the cycle. In many markets, the economic recovery has not been broad enough to produce sufficient job growth, so business travel, although improving, has not as yet fully recovered or pricing power completely returned," he said.
Lodging Econometrics estimates that by the end of 2005, between 10 and 12 markets of the top 25 will still not have fully recovered to pre-9/11 operating levels. That indicates that there is still room for additional industry profitability growth toward the back end of the decade.
The majority of planned-construction growth is scheduled to take place at highway locations, in smaller cities and in the outer suburbs of larger cities, mostly in the upscale, midscale and economy segments.
The leading upscale brands are Marriott's Courtyard, Residence Inn and SpringHill Suites with a combined 50 percent construction pipeline share within the chain scale, and Hilton's Garden Inn and Homewood Suites with a 33 percent share.
Holiday Inn Express, with a 29 percent share, and Hampton Inn and Suites, with 22 percent, are the fastest-growing brands, along with Comfort Inn and Suites in the midscale segment, while Microtel, with a 46 percent share, is the economy leader.
Supply shrinking in some markets
Some 58,240 new guest rooms were added in 2004, resulting in a 1 percent net supply increase. Although 70,646 rooms will be added this year, early indications are that net new supply growth will actually finish below 1 percent this year.
"Despite a modest flow of new hotel openings, 11 of the top 25 markets actually show negative supply growth through the first half of 2005, up from six markets in 2004. The reason is that a significant number of guest rooms are going 'off market.' In many markets, hotels are temporarily closed because they are being reflagged and are undergoing extensive renovation programs. In the Southeast, it's because of damage incurred during last year's hurricane season," ford said.
Several functionally obsolete properties from the 1950s and 1960s, particularly in resort communities and in many smaller markets , are being forced to close by a newer generation of products in the midscale and economy segments that are more contemporary and have greater consumer appeal.
In larger tourist destinations, like Anaheim, Calif., Orlando, Fla., Phoenix and Hawaii, along with the Florida and California coasts, and at golf and ski destinations, old properties with prime locations are sometimes being demolished for new hotel construction, but more often than not, for condominium projects that will serve as primary or secondary residences.
In urban centers - financial and technology centers are the best examples - in such cities as Washington, D.C., New York, Boston, Miami, San Francisco and Los Angeles, some hotels are converting a portion of their guestrooms into residences.
"Across the country, there are 28 existing hotels known to be joining the 'condo-hotel' bandwagon. Seventeen are converting a percentage of their guest rooms into residences, while another 11 are completely converting to condo hotels, selling their entire guest room inventory as individual condominium investments," Ford said.
"In the new construction pipeline, 101 hotel projects are planning to include a residential component. Another 46 will be pure condo hotel projects, selling their guest room units as individual condominium investments."
Adding a residential component to a new high-end, full-service hotel project, or planning to sell the completed guest rooms as individual condominium investments is one way large hotels can be built this early in the development cycle. The early sales proceeds provide comfort to both the developer and the lender; enabling the project to carry less long-term debt and improving the project's overall feasibility.
"These are classic examples of where all types of real estate migrate to their highest and best use to provide the highest and best return on invested capital. In some cases, that means residential and condominium development as a replacement for, or an enhancement to, hotel development," he said.
In several markets, the first wave of new supply additions in this new upcycle will go to replace "vanishing" inventory before contributing to any positive net new supply growth. This overall refreshing of the industry's inventory is good news for investors, operators and consumers alike.
Leading hotel companies in 50 largest markets
Because it's the strategic planning season, Lodging Econometrics separately studied all hotel construction and reflagging project records for the leading companies that have an array of brands across the various chain scales in the 50 largest cities.
These markets are important because they are the top economic and leisure destinations in the country and therefore are the top targets for brand distribution and marketplace presence.
The study revealed:
+ Marriott has the most projects and gues trooms in the development pipeline in these markets with 189 projects of 31,335 rooms. Hilton is second at 183 projects of 26,682 rooms. Marriott has the dominant development position in 19 of the 50 markets; Hilton leads in 16 of the markets, while Starwood follows in nine.
+ Marriott has the most open and operating hotels with 1,310 hotels of 263,272 rooms, followed by Hilton with 1,125 hotels of 224,126 rooms. Marriott has the most hotels in 31 of the 50 markets, Hilton in 14 and InterContinental in two.
"It's a neck and neck battle for market share between the two giants, Marriott and Hilton," said Ford, "but the development pipeline indicates that Marriott is likely to retain its overall lead in the nation's largest markets, at least through the end of the decade." s
Add to del.icio.us
Add To FURL
Add to spurl
Yahoo! MyWeb
Use Socializer to
automatically on multiple sites