As I’m sure most readers of this blog are aware, this week STR revised our 2009 and 2010 U.S. lodging industry forecasts. While certainly not the biggest driver in our downward revisions in both years, the persistent nature of new hotel openings certainly played a role in the determination of the final numbers. To refresh your memory our previous 2009 forecast called for supply growth of 2.6 percent, which we have now upped to 3.0 percent. While we maintained the 1.4 percent in 2010, we will be concentrating a great deal on that number in our next revision.
There are several reasons why revisions to the annual supply growth estimates were necessary. First of all, new hotels now are opening at a faster pace than they have historically, meaning that the construction cycle has recently shortened. This primarily is because of the widespread availability of both materials and workers. As the recession has deepened, the access to both of these critical components has made it possible for most projects to stay on time, and even in some cases open earlier than planned. This is in stark contrast to several years ago when the demand for and scarcity of these resources often caused significant construction delays.
The second reason for the upward revision in supply growth numbers is the nature of the supply growth calculation. STR calculates calendar-year numbers by accumulating how many rooms were available for occupancy each day of the year and then summing up all 365 days. Because this calculation is the only correct way to measure year-over-year supply availability numbers, hotel rooms opened early in the year have a greater impact on total year results than those opened late in the year.
For example, let’s assume a market started the year with 100 rooms. If 10 were added to supply on 1 January each day of the year 110 rooms would be available for occupancy resulting in a 10-percent increase in supply for the year. Now let’s change the dates the new rooms were opened to 31 December. In that case, only one day that year had the additional rooms for sale so the year over year supply growth number would be negligible. In both cases the market started the year with 100 rooms and finished with 110, however the supply growth numbers would be substantially different.
When calculating supply growth numbers for 2009 and 2010 the fact that supply growth will be “front loaded” will drive higher supply growth numbers than many expect. That means that when measuring supply growth on an annual basis, it will be 2011 before the results will be the very low numbers that we all know are coming.
