Patrick Ford, president of Lodging Econometrics, says the Canadian lodging market parallels the US in many aspects, including a financing crisis, sputtering economy and softening hotel industry. However, the US has a larger pipeline (5,652 projects as of Q3) and Canada's hotel development is largely concentrated in the mid-market and economy sectors, Ford adds.

He foresees a progressive dwindling of projects in the development channel. "We expect that there will be a continued flow of cancellations and stalling inside the pipeline of hotels not being able to migrate forward toward construction as a function of financing as well as the economy and how it's impacting lodging operations," Ford says. "Developers today have two things to consider about whether to move forward: One is how the lodging industry is doing and secondly, the lack of financing." However, just as in the US, financing for smaller projects is available from local lending institutions, Ford notes.

In addition, Ford anticipates new project announcements will diminish as well. In fact, LE counted only 14 newly announced hotel projects with 1,236 rooms, the lowest level since the firm began documenting that category in the first quarter of 2005. Nine projects/897 rooms were either cancelled or postponed in the third quarter, which follows the cycle's largest pipeline withdrawal in the second quarter. Construction starts hit a cyclical peak in Q2 '07 and have since continued to descend over the past five quarters, landing at 18 projects/1,896 rooms in Q3.

At the same time, the pace of new hotel openings will accelerate. "That's because a third of the pipeline is already under construction," Ford says. "In a sense, the pipeline will be emptying out because of new openings and cancellations, and it will be not be replenishing because new project announcements are declining."

More than half—56%—of the total pipeline are concentrated in just six Canadian cities: Toronto, Niagara Falls, Vancouver, Edmonton, Montreal and Calgary. "Those are the economic centers" of the country, Ford points out.

In Q4, LE projects that 18 new hotels with 1,862 keys will open. That's on top of the 56 new hotels/6,768 rooms that have been delivered so far in '08. For 2009, 70 hotels/8,746 rooms are expected to come on line, a gross growth rate of 3.1% before removals from inventory. That is down from the firm's previous forecast of a 3.3% increase. LE has adjusted its forecast for 2010 downward as well, with an estimate of 73 lodging properties/8,629 keys making their debut, a 2.9% gross growth rate.