Lodging Economics Releases Q2 Canadian Hotel Construction Report

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(News Source: Lodging Economics)

FORECAST FOR NEW HOTEL OPENINGS

(PORTSMOUTH, NH) -- For the first time, Lodging Econometrics (LE) has compiled and announced its Forecast for New Hotel Openings for 2011 for Canada. New Hotel Openings are projected to be at a five-year low of 36 hotels/4,380 rooms. Because of continued economic uncertainty, LE has also adjusted its forecasts for 2009 and 2010 downward. The 2009 forecast has been reduced to 64 new hotels/7,463 rooms, down by 333 rooms, a decrease of 4%. The 2010 forecast has been adjusted to 43 projects/5,591 rooms, down 2,164 rooms or 28%.

The total Pipeline peaked earlier in Q1 2008, producing New Hotel Openings of 66 hotels/7,784 rooms in 2008. This is the highest number of new hotels to come online in this development cycle.

These forecasts may appear lower than would normally be expected based on the current total Pipeline of 197 projects/24,252 rooms. Because the global economic crisis lingers and lodging operating statistics continue to soften, the ripple effects are impacting developer sentiment. The reduced forecast is a direct reflection of this, with the number of New Project Announcements into the Pipeline declining and Cancellations and Postponements of projects already in the Pipeline continuing at a high rate.

KEY PIPELINE METRICS

Canada is experiencing a milder recession that isn't as precipitous as in other regions. But, developer concerns over the economy, lodging operating trends and a difficult lending environment have still led to a pronounced slowdown of projects already in the Pipeline migrating forward towards construction.

Construction Starts, now at 10 projects/1,137 rooms, are down 47% by rooms from the peak in Q4 2008. Only a small number of projects, the lowest level experienced in 18 quarters, have been able to move up toward construction, while many others remain stalled. As these trends continue, LE expects more developers with stalled projects to cancel or postpone until economic and operating trends bottom and start to improve.

In Q2, Cancellations/Postponements are in a topping formation and now stand at 33 projects/3,013 rooms. The number of projects in Q2 has risen, but the number of rooms has dropped. Today, many Midmarket and Economy projects are exiting the Pipeline, while earlier; it was mostly the larger, urban center projects. Notably, some developers are now putting their entire development portfolio on hold as they work to preserve their capacity to deal with other is­sues in their operating portfolio. Cancellations/Postponements are expected to remain elevated through the remainder of 2009 and into 2010.

New Project Announcements (NPA's) are the most significant indicator of developer sentiment. NPA's into the Pipeline have dropped to 17 projects/1,720 rooms and are expected to continue in a bottoming channel until early next decade.



PIPELINE SUMMARY

In Q2 2009, the Construction Pipeline stands at 197 projects/24,252 rooms. This is a drop of 26% by projects and 29% by rooms from the Q1 2008 Pipeline peak. The total Pipeline is now at its lowest level in 17 quarters. The number of projects Under Construction are at an 11-quarter low, and projects Scheduled to Start Construction in the Next 12 Months at an 18-quarter low. There are clear signs that this development cycle is rapidly coming to a close.

For the second year in a row, a historically high level of new hotel openings will come online in 2009, before the declines accelerate starting in 2010. Elevated cancellations and postponements will also draw down project totals from within the Pipeline, while the low level of NPA's will be insufficient to refresh the Pipeline. Consequently, the total Pipeline should continue to decline into early next decade before entering a bottoming formation awaiting the next economic upswing.

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