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Is a Hotel Building Boom On the Horizon?

I could be wrong, and a number of things must fall into place, but I think the hotel industry is on the cusp of another development spree. Of course, every major forecast for the business for the next couple of years puts new rooms supply growth below the historical average of about 2%. But I’ve talked to lot of people in recent months who say they’re prepared to pull the trigger on new development if they feel the economic and political signs are right.

Of course, that’s the major caveat. For me to be correct, and for lodging developers to start doing what they do best, a few hurdles must be overcome. First and foremost, Congress and the President must resolve the “fiscal cliff” conundrum in such a way that businesspeople feel confident and optimistic again. Secondly, the business community and others must come to grips with the outcome of the election. It’s over, perhaps your man didn’t win, but it’s time to get back to business and figure out ways to solve whatever obstacles you believe the second Obama administration will put in your way. The beauty of America is that the most successful capitalists always find a way to succeed, even in the worst of times. Let’s all prove that maxim to still be correct.

Another challenge, of course, is the state of the economy. Budget deficits aside, the main goal for the next couple of years should be to get people back to work and feeling confident again, and spending money—hopefully a big chunk of it on travel. And finally, geopolitics must not become another roadblock to recovery. The flashpoints are the Middle East, the Euro crisis and any unforeseen terror event or natural disaster.

While the total hotel development pipeline in the U.S. is low compared to the height of the most recent boom in the early to mid-2000, the number of hotel rooms under construction continues to creep up. According to figures from STR for October, six of the seven chain scale segments are showing increases in rooms under construction (only the upper upscale segment is down), and the luxury level leads the pack with a whopping 165% increase in rooms under construction. The upscale and upper midscale segments are the hottest, however, with each having more than 20,000 rooms under construction.

The total pipeline is down 6.6% from the same month a year ago, but rooms under construction (and presumably destined to actually open, probably within the coming year) is up 22.7%. STR says room supply will only increase by about 1% next year, but I think that forecast may be understated, and certainly 2014 and ’15 could be years that approach the boom times in terms of hotel openings. Owners of existing hotels may not like it, but I hope I’m right and lodging development heats up quickly. A booming and growing hotel industry is one sure sign the overall economy is percolating, and that’s good for all of us.

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