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As the credit markets remain frozen and hotel revenues continue to plummet, new hotel development has fallen steadily after the pipeline hit a cyclical peak in the second quarter of 2008. Since then, total global construction has declined 10% by projects (9,747 versus 10,781) and 12% by room count (1.6 million versus 1.8 million), according to statistics compiled at the end of 2008 by Lodging Econometrics.

Patrick Ford, president of Portsmouth, NH-based LE, tells GlobeSt.com that a steep falloff in new construction began in September 2008 and has continued into the first quarter of this year. He says the drop is the result of the inability of all large commercial projects to get financed and the concurrent softening of lodging fundamentals.

“People are concerned about not being able to get financed,” Ford says, “and the second concern now is the operating statistics that have surfaced in the lodging industry.”

In 2008, 2,811 new hotels with a total of 392,941 rooms opened their doors worldwide. Nearly 40% came on line in the US, which added 153,411 new rooms. Next up was the Asia Pacific region, which accounted for 38% of new global additions and reached a cyclical peak in 2008 with 907 hotels and 150,559 rooms. Spurred on by the Olympics Games, most of those were in China.

In most other regions, new deliveries are expected to reach cyclical highs over this year and next. Many of those projects able to obtain funds earlier in the decade before the lending spigot was turned off. LE predicts that 2,758 hotels with 411,570 rooms will open in 2009, with 2,639 hotels and 435,133 rooms debuting next year. Excluding Asia Pacific and the US, which is poised to peak in 2009, new openings in the other regions—Canada, Latin America, EMEA (Europe, Middle East and Africa)—are expected to crest in 2010.

Contributing to the shrinkage of the global pipeline is a significant number of projects either being cancelled or postponed. Falling from a cyclical low in the final quarter of 2007, 738 projects with a total of 148,902 rooms had been shut down or delayed at the end of Q4 ’08. The US led in that category with 51% of all cancelled rooms, followed by Asia Pacific at 26%.

Construction starts, meanwhile, have trended downward since a high point was reached in Q4 ’07 and stood at 536 projects/73,527 rooms when 2008 ended.

Although new-project announcements rose 18% between the third and fourth quarters of last year, NPAs have been on a steady downward tilt since the Q4 2007. According to LE’s Q4 ’08 report, NPAs hit 993 projects and 138,840 rooms in Q4 2008.

But there are some countries that have strong development pipelines, such as Canada, India and Brazil, Ford says. However, projects in Canada and India, similar to the rest of the world, tend to be smaller (under 200 rooms), branded projects in the select-service segments, where financing is more readily accessible.

Ford does not foresee a turnaround in new lodging development anytime soon. “The pipeline has peaked and we are going to go through a prolonged decline,” he says. “From the peak to the trough in the last cycle, it was a four-year period of time. We are going to show that our high came in 2008. The total pipeline will decline through 2011 and 2012 before we have a bottom. That being said, there is going to continue to be activity in the pipeline, but it’s going to be focused primarily on mid-market projects.”

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