Hotel construction will check out in 1999
By DARYL DELANO -- Industrial Distribution, 3/1/1999
Following six years of growth, developers of hotel properties, and the companies that operate them, are growing increasingly concerned that there'll be too much room at the inn during 1999. There's plenty of evidence that the market has -- once again -- become overbuilt. Occupancy rates, which peaked at over 65% during 1995, dropped to about 63% by year-end 1998. And a new forecast by the research/consulting firm of PricewaterhouseCoopers predicts that occupancy levels will sink further this year.The hotel market is notoriously "boom or bust" in nature. Through the first five years of the 1980s, annual hotel construction spending growth averaged 26.8%; during the second half of the decade, hotel development grew at the rate of just 3.1% annually, including a 7.5% decline in spending during 1988.
The pattern has been just as erratic and unpredictable during the 1990s. After expanding by 15.1% during the first year of this decade, hotel construction spending plunged 35% in 1991 and 46.8% during 1992. New hotel development was valued at just $3.69 billion during 1992, after rising to $10.68 billion only two years before.
Since 1992, the hotel market has grown for six consecutive years, including annual gains of over 50% in both 1995 and 1996. During 1998, hotel construction spending grew by an estimated 8.2% from its strong 1997 total to reach a level of almost $14 billion.
The PricewaterhouseCoopers report suggests that hotel development has overshot the mark. They point out that in the past three years, nearly a half-million new hotel rooms have been built nationwide. Of the 180 cities around the country analyzed by the firm, fully two-thirds will see a decline in occupancy rates next year.
Demand for hotel rooms grew by nearly 3% in 1998, but is predicted to increase by only about 2% this year and just 1.8% in the year 2000. All told, PricewaterhouseCoopers predicts a dropoff in building during 1999 to 117,000 room starts -- about 20% below last year's total.
Hotel construction spending more than doubled between 1994 and 1996, after plunging more than 65% between 1990 and 1992.
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