Hotel projects wane, rooms go vacant

April 01, 2001 |

While hospitality generally lags behind the overall economy, downtrends are already noted in development and occupancies. Fewer hotels are in "active development" early this year, having dropped by as many as 320 projects and 61,500 rooms in the fourth quarter of 2000, according to Lodging Econometrics, a Portsmouth, N.H.-based hotel analyst. Defined as projects under construction or in permitting, 1,591 projects and 222,871 rooms were on line at year's end, a drop of about 20 percent from the third quarter.

This is the most dramatic slowdown since the Russian/Asian financial crisis of 1998, which pulled the plug on scores of major projects. Accelerating the latest construction slowdown are reports of increasing vacancies in major cities and hubs. In New York City, for example, where last year's occupancy rates hit an all-time high (84 percent) and average daily room rates hovered at $250, bookings were already off by 4 percent in the fourth quarter, says San Francisco-based PKF Consulting. The firm predicts an average occupancy rate of about 80 percent for the city in 2001, as the local market absorbs as many as 2,000 new rooms.

The softening market is due to tighter lending standards, higher interest rates, record consumer debt and more costly labor and materials, says Patrick H. Ford, president of Lodging Econometrics.

Project delays are also more common. "The amount of time from project inception to completion date takes 25 to 50 percent longer than it did 21/2 years ago," Ford observes.

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