Hotel construction market positioned for comeback in 2003

February 01, 2002 |

Last year was emphatically a down year for hotel construction, and indicators point to a continuation of this sector's woes throughout 2002.

However, it could be worse. The last time the nation slipped into a recession, spending on hotel construction plummeted. Between 1990 and 1991, total dollars spent on lodging construction plunged by 35 percent — only to be followed by an even-steeper 46.8 percent drop during 1992. But, despite the fact that this market sector faces serious challenges again this recession, they are of a much different nature than those that confronted it 10 years ago.

Business and leisure travel demand began this recession chilly, and the special factors associated with Sept. 11 sent the travel and hospitality industries into a deep freeze. But as the travel market slowly begins to thaw during 2002, hotel construction spending should start to show greater vitality because the market is not seriously overbuilt at the present time. There are plenty of rooms out there — too many for current economic conditions. But for the long term, current inventory levels are in line with the demand that can reasonably be expected to materialize during the early days of the economic recovery to come.

Current consensus is that downtown, full-service and resort-community lodging construction will be severely constrained during 2002, while properties within driving distance of major cities will hold their own. Overall construction spending in the sector is likely to decline by more than 10 percent for the second consecutive year.

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