Construction Pipeline Overview

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At the end of Q4 2009, according to Lodging Econometrics, thetotal construction pipeline for Europe, the Middle East and Africa,has 1,373 projects/285,770 rooms. Pipeline counts have now declined22% by projects and 23% by rooms since the Q2 2008 peak. And,according to the company, they are expected to decline further, asconcerns about the pace of economic recovery, the industry'soperating perfor¬mance and lending issues persist and continue toimpact developer sentiment.

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Depleted by high cancellations and a late surge in new openings,total pipeline counts are in an end-of-cycle contraction, saysLodging Econometrics. In 2009, total cancellations/postpone¬mentsin EMEA removed nearly 96,000 rooms from the pipeline. "As thelending environment is not expected to rebound any time soon,cancellations/postpone¬ments will likely remain high for thenear-term. New hotel openings coming online as additional supplywill stay at an elevated rate, particularly in the Middle East andAfrica, where new openings will accelerate through 2011."Meanwhile, the company says that new project announcements into thepipeline, which have been in a low channel for four consecutivequarters, are expected to remain at these low levels, which are farfrom sufficient to offset declining Pipeline trends.



Middle East

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According to Lodging Econometrics, total pipeline countsdeclined for a sixth consecutive quarter to 451 projects/124,133rooms in Q4. Project counts are down 19% and room counts down 24%from the peak. "With mounting concerns over Dubai's sovereign debtproblems and its impact on development and lending throughout theregion, further de¬clines in pipeline totals are expected."

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The company notes that along with difficulties in sourcingfinancing, decreases in room demand and even deeper declines inroom rates are keeping NPAs in a low channel, accelerating pipelinecount declines and signaling the end of this development cycle. Nownearing the back end of the cycle, projects that are smaller andthose associated with a brand are becoming more attractive todevelopers. 53% of total NPAs in Q4 are 200 rooms or less, with agrowing 68% already having chosen a brand.

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Cancellations and postponements remain at an elevated rate,particularly for larger projects and those without a brand, thecompany says. Fifty-four percent of projects cancelled or postponedin Q4 are larger than 250 rooms, with five cancelled projectshaving 600 rooms or more. And more than half of Q4'scancellations/postponements have no brand affiliation, the companyreports.

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Approximately 73 hotels with 20,475 rooms opened in 2009. With51% of total pipeline projects and 55% of rooms now underconstruction, new openings are expected to ramp up through 2011,causing new supply to grow at an increasing rate. The companyforecasts 90 new hotels/24,508 rooms to open in 2010, then 104hotels/30,553 rooms are projected to enter as new supply in 2011.Thereafter, "new hotel openings will begin to taper off as a resultof the shrinking pipeline."

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Europe

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At the end of Q4, Europe's Pipeline is at 746 projects/128,113rooms. According to Lodging Econometrics, this is the sixthstraight quarter of declines, with project totals having fallen 27%and rooms by 26% from the pipeline's peak in Q2 2008. Roughly 357projects/65,296 rooms are currently under construction,representing 48% of total projects and 51% of rooms. "These highpercentages are indicative of a rapidly decreasing pipeline."

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According to the company, the lack of available financingcontinues to impact both the rate of project migration up thepipeline towards construction and the flow of NPAs into thepipe¬line. "Both construction starts and NPAs remain in a lowchannel in Q4 and will stay that way, as the availability oflending is not expected to change in the near future." Projectsthat are able to obtain financing are mostly smaller-sized, thecompany says. Construction starts for the quarter average just 160rooms, and 85% of construction starts and 89% of NPAs have alreadyselected a brand, as the marketing and operating benefits of abrand are increasingly compelling to developers and lenders, thecompany reports.

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The company forecasts new hotel openings to remain historicallyhigh in 2010 with 200 hotels/32,908 rooms coming online. In 2011,the company projects that new openings will decrease to 153hotels/26,581 rooms, reflecting the ongoing contraction of totalpipeline counts. "This downward trend will continue going forwardas pipeline totals decrease further."

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Africa

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Totaling 176 projects/33,524 rooms at the end of Q4, projectcounts in Africa are off by 2% and rooms by 9% from the pipelinepeak, says Lodging Econometrics. "They are the smallest pipelinepercentage declines of any region in the world." However, the samedirectional trends impacting the Middle East are apparent in Africaas well, the company says. "NPA's are at cyclical lows and projectcancellations and postponements continue to run high."

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The company notes that the pipeline began to unfold in earnestas new openings in 2009 and that new openings are expected to be athistoric highs through 2010 and 2011. Working together, accordingto Lodging Econometrics, "these metrics indicate that totalpipeline counts will decline further into mid-decade, bringing thisdevelopment cycle to a close."

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US

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If you look at the national numbers in the pipeline, they arequite a bit higher. According to the STR/TWR/Dodge ConstructionPipeline Report, the total active US hotel development pipelineincludes 3,551 projects comprising 368,740 rooms. This represents a35.9% decrease in the number of rooms in the total active pipelinecompared to February 2009. The total active pipeline data includesprojects in the in construction, final planning and planningstages, but does not include projects in the pre-planningstage.

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"We're seeing comparable declines in room development across allregions of the country," says Duane Vinson, vice president at STR,in a prepared statement. "The Mountain Region has posted thesharpest year-over-year decline due to a 75% (16,000-room) declinein the Las Vegas pipeline."

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Natalie Dolce

Natalie Dolce, editor-in-chief of GlobeSt.com and GlobeSt. Real Estate Forum, is responsible for working with editorial staff, freelancers and senior management to help plan the overarching vision that encompasses GlobeSt.com, including short-term and long-term goals for the website, how content integrates through the company’s other product lines and the overall quality of content. Previously she served as national executive editor and editor of the West Coast region for GlobeSt.com and Real Estate Forum, and was responsible for coverage of news and information pertaining to that vital real estate region. Prior to moving out to the Southern California office, she was Northeast bureau chief, covering New York City for GlobeSt.com. Her background includes a stint at InStyle Magazine, and as managing editor with New York Press, an alternative weekly New York City paper. In her career, she has also covered a variety of beats for M magazine, Arthur Frommer's Budget Travel, FashionLedge.com, and Co-Ed magazine. Dolce has also freelanced for a number of publications, including MSNBC.com and Museums New York magazine.