REPORT FROM THE U.S.—Ground-up development is rolling at Concord Hospitality. The Raleigh, North Carolina-based hotel management and development company added three new hotels to its 51-hotel portfolio in the past six weeks, and it expects to add at least six more by the end of the year.

Mark Laport	Robert Olson

“We have a few projects that we will start as ground-up (next year), but it’s fewer for sure,” said Mark Laport, who founded Concord almost 20 years ago.

The onset of that slowdown has already hit R.D. Olson Construction, an Irvine, California-based hotel construction company.

“We are under construction with one new hotel now where typically we would have five,” said Robert Olson, the company’s president and CEO.

Read "Hoteliers adapt development strategies as pipeline declines."

While on opposite ends of the country, the two companies are not alone. Total projects under construction in the U.S. have fallen 20.1 percent since last year, with a corresponding 27.2-percent drop in the number of rooms, according to the June 2009 STR/TWR/Dodge Construction Pipeline Report released exclusively to HotelNewsNow.com.

“We are starting to see the U.S. pipeline taper off as we move through the end of 2009 and into 2010,” said Duane Vinson, VP of content management at Smith Travel Research.

Attribute that decline to the economic maelstrom that’s plagued the global hotel industry since September 2008. Lack of debt availability, sagging industry fundamentals and a general sense of economic uneasiness all contributed to the decline, according to sources interviewed for this story.  

The largest percentage drop-off in the total active pipeline occurred in the final-planning stage of development. In June 2008 there were 1,065 projects in that phase when the industry was near its performance peak. In one year, the category declined 37.8 percent to 659 hotels comprising 66,316 guestrooms. The active pipeline includes the in-construction, final-planning and planning phases, according to STR.

“What happened with all of those projects is that they either did go into construction or, because the recession started, they sat and waited before breaking ground to see how long the downturn would last,” Vinson said, adding there’s been an increase in abandonment rates before any shovels hit the ground.

U.S.

The U.S. pipeline has decreased significantly over the last year.

“We’ve seen quite a bit of that slowdown,” Vinson said. “However, there’s still a lot going on in some of them,” adding that development has been concentrated along the East and West coasts as well as the South “coast,” where construction in Texas and the South Atlantic regions have resulted in some of the largest numbers of projects in the active pipeline.

Duane Vinson

InterContinental Hotels Group, still has 962 projects comprising more than 95,000 guestrooms in the total active pipeline in the U.S., according to STR Global.

“The U.S. is still a dominant growth engine,” said Jim Anhut, IHG’s senior VP of franchise development for the Americas. “We are still very focused on growing here. It’s still a very promising market.”

There undoubtedly will be continued ebb and flow in the 501,476 guestrooms currently in the total active pipeline, but whatever percentage of that number that enters the market throughout the second half of 2009 will continue to put pressure on occupancy and revenue per available room for the U.S. hotel industry.

Pipeline attrition, like the downturn, was not contained within the borders of the U.S., however. Different world regions experienced slowdowns to various degrees, according to data compiled by STR and STR Global.

Asia/Pacific

Whereas most development in the U.S. has taken place in the upscale chain scale and midscale-without-food-and-beverage chain scale during the past five years, development in the Asia/Pacific region has been focused on the higher end of the market, according to Vinson.

“About 60 percent of the projects in Asia/Pacific are in luxury, upper upscale and upscale,” he said.

Within the world region, two countries are dominating in terms of overall development: China and India. There are 356 projects comprising 108,346 guestrooms in China’s total active pipeline. India has 265 projects comprising 45,323 guestrooms in its total active pipeline, according to STR Global.

But while China’s development is primarily focused in larger markets such as Shanghai and Beijing, development in India is more geographically spread throughout the entre country, including a few mid-tier markets. 

The Caribbean and Mexico

The momentum that was building in the Caribbean region has waned under the pressure of the global economic recession, leaving Mexico to experience the majority of development activity, according to Vinson.

“Most of the activity right now is taking place in Mexico,” he said. “It’s primarily in those mid (chain-scale) sectors—upscale, midscale with food and beverage and midscale without food and beverage.”

But there still remains some luxury movement in the Caribbean, more investors are looking to buy distressed assets than start ground-up construction, Vinson said.  

Central and South America

Development within Central and South America primarily is taking place within the upscale and economy chain scales

Much of the development in the economy segment is being fueled by a relatively new entrant to the field: Accor.

“Accor has become very active in South America, primarily in Brazil where they really didn’t have a strong presence,” Vinson said.

Brazil is playing host to the bulk of development, accounting for about 45 percent of projects (66 projects) in the total active pipeline.

Europe

Europe might have followed the U.S. into this recession, but the region hasn’t followed the latter’s drastic pipeline attrition.

The U.K. accounts for the most number of projects (123) in the total active pipeline, followed by Germany (87), Spain (73), France (60) and Russia (58).

“We’re still seeing a lot of development right now primarily in the U.K.” Vinson said. “We’re not really seeing the tapering off in the projects in the U.K. that we’re seeing the United States.”

Development is primarily taking place in the larger markets, such as London, Madrid and Berlin, he continued. Whereas development has spread to tertiary markets in the U.S. given the crowded primary markets, the relative lack of a substantial branded hotel presence in many European metropolitan areas has made them prime targets for new construction.

Middle East/Africa

“What’s being built is very similar to what we’re seeing in Asia/Pacific; primarily it’s the high-end luxury, upper upscale and upscale,” Vinson said, adding that 61 percent of projects in the region’s total active pipeline are in those three chain scales.

The vast bulk of that development is taking place in the United Arab Emirates, where the skyrocketing oil prices of a few years ago led to a development boon that’s yielded more than 100 projects comprising more than 33,000 rooms under construction.

The UAE is not without its fare share of attrition, though. “The global recession has hit the Middle East hard,” Vinson said. “Oil prices have fallen, and that has certainly had an impact on the region.”