Hotels Facing Tough Year Ahead

Lodging Econometrics, which studies the hotel real estate market, predicted a challenging year for hoteliers in its 2008 Outlook for the Lodging Industry. Despite an ongoing boom in new hotel construction and openings, economic conditions may indicate a turning point in the lodging industry, according to the report.

Issues loom for hotel developers, investors and operators:

• the lingering banking and credit crisis
• a declining economy
• softening demand, room rates, revenue per available room and operating profits
• fading real estate values

The gloomy forecast from Lodging Econometrics came despite the fact 5,438 hotels with 718,387 rooms were in the U.S. construction pipeline at the end of 2007's fourth quarter, more than had ever been in progress since records have been kept. Lodging Econometrics President Patrick Ford said that represented a 36-percent year-over-year jump, the largest quarterly increase in almost three years.

In 2008, the forecast for new openings was 1,208 hotels and 133,628 rooms, a 2.8-percent increase in inventory. For 2009, the forecast was for 1,456 hotels and 166,236 guestrooms, a 3.4-percent growth rate.

According to the Lodging Econometrics study, the projections take anticipated market conditions into account, but they may be adjusted again if economic and lending conditions worsen more than expected.

Slower demand would mean less ability to increase room rates and grow revenue. That would mean lodging's recovery from its worst days in 2003 would be over before projects in the construction pipeline could be completed.

Ford said the current development boom is led by projects in the upscale and mid-market sectors, which together make up 83 percent of non-casino projects and 76 percent of the rooms in the pipeline.