October rise masks erosion of hotel construction spending

February 01, 2001 |

The commerce department estimates that a total of $13.9 billion was spent for the construction of new hotels or motels-or the renovation and remodeling of existing properties-during the first 10 months of 2000. This marks an increase of 4.4 percent over the January through October 1999 spending total. By the time final data revisions are accounted for, spending in this sector will be up 2.6 percent from its 1999 level, the smallest annual gain in hotel construction spending since the early '80s.

Although this sector was the weakest of the three commercial construction categories, which also includes office and retail, it came on strong at mid-year following a soft first several months of 2000. In fact, October 2000 spending was a surprising 18.6 percent above the October 1999 total.

However, that year-earlier figure was unusually depressed, coming in at a level of more than 15 percent below the October 1998 total. During one period of eight consecutive months between August 1999 and March 200,0 construction spending in each month fell below the level of a year earlier. It was clear that the industry was having difficulty absorbing the flood of new rooms into the market.

Revenue per available room-a key industry productivity measure that combines data on occupancy and average room rates-rose by a still-healthy 5.4 percent during the first half of last year. But although the business remains profitable, it is becoming increasingly evident that the nation's lodging sector is overbuilt in a number of geographic areas around the country, particularly in certain property classes.

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