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Construction of new hotels nationwide has declined for the first time in five years and is likely to continue on that track into the next decade, according to various reports. Experts say declining future demand for rooms and tighter financing for larger projects are contributing to the fall-off.

“It’s a dead-center hit,” Patrick Ford, president of Portsmouth, NH-based Lodging Econometrics, tells GlobeSt.com. “The credit crisis and softening lodging operating statistics are having an adverse impact on developers’ thinking.”

As of the third quarter, Lodging Econometrics counts 5,652 projects totaling 740,272 rooms in its US hotel pipeline. The firm notes that construction starts were down for a second consecutive quarter and that many projects have slid back from scheduled starts over the next 12 months into “early planning” status.

Construction starts have declined during the year to roughly 400 projects nationwide through the third quarter, while cancellations and postponements jumped to 360 between July and September, according to Lodging Econometrics data. The number of new project announcements for the quarter totaled 429, roughly half of those announced in the third quarter of 2007.

Lodging Econometrics’ figures are in line with other industry estimates. The latest Smith Travel Research/Dodge Construction Pipeline Report includes 5,926 hotels comprising 654,590 guest rooms through September, excluding projects in the pre-planning stage in which architects or engineers have not been hired.

Hotel construction in the nation’s largest markets has slowed during the past year, by as much as 13% overall, according to Duane Vinson, VP of content management for Smith Travel Research in Hendersonville, TN. “A prolonged recession could mean a higher number of hotel projects moving into deferral or full abandonment,” Vinson stated in last month’s report.

New York City has one of the largest hotel pipelines among major US markets, though a new report by CB Richard Ellis states that construction of new rooms is overestimated by 30% through 2010. Approximately 70 properties will supply 11,000 new rooms to Manhattan over the next two years.

“Manhattan’s incredibly robust hotel market should not be significantly impacted by new hotel supply,” says Bradley Burwell, senior associate with CBRE Hotels. He adds that new supply constriction over the next two to three years will allow hotels in the market to realize substantial top-line growth.

Other markets with large hotel pipelines, exceeding 20% of current guestroom counts, include Phoenix, San Antonio, Houston, Washington and Philadelphia, Lodging Econometrics states. Atlanta and Dallas will see significant additions next year, while Chicago and Orlando won’t see theirs unfold until 2010.

Average selling price per room for hotels larger than 200 rooms is $115,000 so far this year, down 31% from $167,200 in 2007, Lodging Econometrics reports. For properties with 200 rooms or less, prices are down 10% from last year to $73,800 per room.

Credit has tightened and interest rates are higher for larger hotel properties, Ford notes, while branded, upscale or mid-market projects are able to work with community banks. “Financing is rare, and when it is available it’s for smaller projects,” he says.

In its three-year forecast for new hotel openings, Lodging Econometrics estimates at least 1,200 properties with 135,000 rooms opening this year, a 2.8% gross growth rate. Its forecast calls for 1,436 new hotels with 158,851 rooms in 2009, up 3.3%, with 1,389 hotels and 158,889 rooms in 2010, up 3.2%.

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