Hotel construction declines by 28%

February 01, 2003 |

The Commerce Department estimates that a total of $8.80 billion was spent for new construction or renovation/remodeling of hotels and motels during the first ten months of 2002, a decline of 28.2% from the spending total for the same period of 2001. Following a decline of 11.5% in the total value of construction work completed on lodging space during 2001, it looks like 2002 spending was off another 25-30%.

The challenges facing the lodging industry have been well documented by Smith Travel Research (STR), a Tennessee-based research/consulting company that tracks trends in the lodging industry. They report that the national hotel occupancy rate was 64.4% during the third quarter of 2002, an increase of less than one percentage point from the depressed 63.5% rate recorded during the same quarter of 2001. For the first nine months of 2001, STR estimates show an average occupancy rate of 63.1%; for the first three-quarters of last year, that rate actually fell to 61.0%.

The construction completion statistics for 2002 tell us that relatively little has been added to the U.S. lodging inventory — a rational response on the part of hotel/motel developers to what at the beginning of 2002 already promised to be at best a "challenging" year. Nevertheless, STR estimates that revenue per available room — a key industry productivity measure that combines data on occupancy and average room rates — was 4.8% lower during the first three-quarters of 2002 than it had been during January-September 2001. So the market still has a long way to go before it returns to health.

There were a few encouraging signs, though, that the market stabilized during the second half of last year and is poised for some modest improvement in 2003. STR reports that overall demand for hotel rooms increased by 2.7% between Q3/2001 and Q3/2002, and that revenue per room crept up 0.5% over the year.

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