Hotels sector to improve in mid-2010

November 01, 2009 |

Over the past 14 months, hotel construction spending fell 38%. Starts fell even more—down 57% year-to-date through September. September starts are more than 75% below levels seen during the hotel building boom of fall 2005 to summer 2008, and spending will decline an additional 7% into next summer. These figures will make the 2008 to 2010 decline around 25% deeper than the last recession.

Hotel occupancy has dropped below 60% and is headed to around 55% in the year ahead. As a result, revenue per available room is already down nearly 20% and will fall further. The improvement in the economy will balance changes in room supply, however, with increased room demand late in 2010.

Hotel construction spending will begin rising slowly next summer as project costs increase in a stronger construction environment. Also, renovation work will pick up, much of it the result of hotel ownership changes forced by an inability to rollover existing hotel financing. The building bust is worse for luxury and resort properties than for business- and budget-oriented properties.

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