Steep rise in project abandonment

The number of hotel guestrooms in the construction pipeline in the U.S. that have been abandoned increased 75% in November 2008 over November 2007, according to the latest data from the STR/TWR/Dodge Construction Pipeline Report.The Total Active Pipeline for the U.S. through November includes 631,680 guestrooms-including 191,807 that are in the In-Construction phase. The Total Active Pipeline figure is 6.7% higher than it was in November 2007, while the number of rooms in the In-Construction phase is 6.8% lower than it was in November 2007.

November 2008 figures released last week show 93,219 guestrooms have been abandoned in various stages of development-from Pre-Planning to In-Construction. That figure is 8,729 more guestrooms than in October 2008 and 39,887 more guestrooms than were abandoned as of November 2007.

“Given the current state of the economy and the non-existence of new-construction lending, these numbers aren’t surprising,” said Jan Freitag, STR’s Vice President of Global Development. “We believe that we will continue to see this high level of abandonment through at least the first half of 2009. Until new funding for new and existing projects is made available by lenders, there is little reason to believe that the rate of abandonment will slow.”

The November report shows that the total U.S. supply of 4,677,165 guestrooms through November is 3.2% higher than it was at the end of November 2007. Five of the nine U.S. regions reported year-over-year decreases in the number of guestrooms in the In-Construction stage: New England (-47.2%); West North Central (-27.3%); Pacific (-26.5%); Mountain (-23.7%); and East North Central (-12.7%).

The West South Central region, which consists of Arkansas, Louisiana, Oklahoma and Texas, reported a 17.7% year-over-year increase of rooms In Construction. Other regions: Middle Atlantic (+12.2%); South Atlantic (+3.1%); and East South Central (0%).

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“The number of rooms In-Construction continues to decline significantly in many regions, with very notable exceptions in the Middle Atlantic and West South Central,” said Duane Vinson, STR’s Vice President, Content Management. “With increased difficulty in securing financing and many brands cautious about their 09 debt ratio projections, you should expect more of the same in the coming quarters.”

Areas in the Great Plains and west of the Rockies are seeing a year-over-year drop in the number of rooms in the Active Pipeline; however, in most regions the projects in Final Planning and Planning continue to be up. In some regions, such as the Middle Atlantic (+17.7%), East South Central (+22.9%) and West South Central (+49.4%), projects continue to push forward.
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