NASHVILLE, Tennessee—Each January, STR evaluates the United States pipeline attrition rates for the previous year. We measure attrition as the probability that a project entering a certain pipeline phase will NOT be completed.
Every project that enters the pipeline will either open or become abandoned. Reasons for abandonment can include lack of financing, difficulty obtaining permits or zone changes. A high attrition rate signifies the likelihood that a project will never develop or open.
Long-term attrition trends
U.S. projects that entered the Final Planning pipeline phase decreased their rate of attrition by only one-tenth of a percent from the previous year, with the overall number of abandoned projects dropping to 20.8%. All other phases maintained their average rate from previous years.
Overall, this is a good thing. The probability that hotel projects will be built at a consistent rate is good for the economy and the hotel industry.
Figure 1: Long Term Attrition Average 2002 – 2010; Source STR/McGraw Hill Construction Dodge
A return to pre-recession levels?
If we look back to 2007 and the height of the development cycle prior to the economic downturn, we see that individual phases had a lower attrition rate. This was especially true of the phase before a project enters construction. If a project entered construction in 2007, there was a 94% chance that it would open.
Surprisingly, the 2010 attrition rate is actually more favorable. Of the projects that went under construction last year, 99% opened. We attribute this change to the decrease in the total number of hotels that entered the In Construction phase of the pipeline during 2010 and the financing that again became available.
Figure 2: Average 2007 & 2010 Attrition Rates by Pipeline Phase; Source STR/McGraw Hill Construction Dodge
What will we see in 2011 and beyond? With the economic climate changing, financing again becoming available and the increase in hotel demand, we predict the attrition rate will decrease. More hotels that enter the pipeline will eventually open than during 2010.