Mixed Predictions About Growth in the Hotel and Timeshare Resort Industries
Tuesday, February 5, 2008
Lodging Econometrics (LE), a Portsmouth NH company that monitors trends in hotel real estate, has released hotel growth projections for 2008.
In their report titled, 2008 Outlook for the Lodging Industry, Lodging Econometrics says that the Construction Pipeline stood at 5,438 projects and 718,387 guestrooms at the end of the fourth quarter 2007, meaning that the hotel industry now offers more than 700,000 rooms for the first time ever.
According to Patrick Ford, president of Lodging Econometrics, “The development boom is led by projects in the upscale and mid-market sectors, which together make up 83% of the non-casino projects and 76% of the guestrooms in the Pipeline. These chain scales include the high profile brands from the top franchise companies – Marriott, Hilton, InterContinental, and Choice, as well as Best Western. These companies had an outstanding year selling their family of brands both to developers for new construction and to investor groups interested in reflagging their open and operating hotels.”
According to Lodging Econometrics research, there are 1208 new hotels projected to open in 2008 translating to 133,628 guestrooms and 1456 hotels projected to open in 2009, which will add an additional 166,236 guestrooms.
The hotel industry experts at Lodging Econometrics assess that this growth pattern indicates, “a clear reflection of optimistic developers who anticipate the lending markets will have stabilized and approached normalcy when they are ready to seek financing.”
While this forecast is almost entirely derived based on the numbers of hotels already under construction, the new report acknowledges that 2009 numbers could decline slightly if economic and lending conditions turn out to be worse than currently projected.
Hotel developers were hoping that the residential real estate mortgage and lending situation would have improved by the end of 2007, and that it would not interfere with lending for hotel development in the future. Because there has not been an improvement, according to Lodging Econometrics, the Federal Reserve started a series of auctions in December to infuse banks with capital at reduced rates. These emergency auctions are meant to encourage banks to be more proactive lenders.
Since that time, the rate cuts by the Feds have surprised (and pleased) most of us. The assessment by Lodging Econometrics is, “Lenders simply have to resume lending.” But even the Lodging Econometrics people acknowledge that the impact of the cuts by the Federal Reserve will take months to truly begin to turn the economy around.
Hotels and Timeshare Resorts May Feel the Belt Tighten
Many of the people who buy timeshare weeks have not been hurt by the mortgage crunch. They have owned their home long enough to have sufficient equity to help them weather the soft economy, and frequently, their homes were bought before the days of irresponsible mortgage lending practices. Yet, I don’t have to tell you that everything from gasoline to groceries has gone up dramatically in price.
So far, the hotel industry has not dealt with enough decline, nor has it gone for a long enough period of time, that serious damage has been done. And timeshare resorts have felt the belt tightening even less than hotels. But how long can either hotels or timeshare resorts hold up if a true recession unfolds?
According to the Lodging Econometrics report, “the Condo Hotel boom is over, while the number of new Timeshare announcements is certain to decline.” Here’s who their report predicts will fare the best in upcoming months. “Properties under 200 rooms, with the top brands and the most experienced developers – having conservative proformas that account for anticipated supply increases in the years ahead – will be the most attractive to finance during the current turmoil, either through local institutions or a declining number of national lenders.”
I can’t help but believe, that timeshare resales will feel the impact of the economy less than other sectors. Besides the fact that often timeshare owners and timeshare buyers are in better shape going into the economic crunch than are many other Americans, the most important factor is that a decline in the number of new timeshare resorts to be built should only serve to drive up the value of existing resorts.
I am not predicting that the value of timeshare resales you currently own will soar, or even necessarily increase, but it may very well be one of the few areas of the economy that does not take a nose dive. And in a declining economy, holding your own, can be a very good thing.