Heading to HD Boutique in two weeks? Don't miss the eye-opener: hospitality industry outlook with Bruce Ford, vice president of Lodging Econometrics. We couldn't wait to hear what he had to say, so we asked him a few preliminary questions to whet our appetites.
What areas are you seeing the most development activity?
When you talk about development today it comes in two parts…renovations and new construction. When we look at new properties being built it is really confined to the top 25 cities. These are leading the recovery of our industry right now and therefore arereceiving a lot of investor attention. New York City alone has roughly 8 percent of the total rooms under construction right now. The top 25 markets obtain the highest ADR in the U.S. and will always be the most desirable development areas with the highest potential for success.
Internationally China has more rooms in the construction pipeline then the U.S. sand many of the prominent cities in Southeast Asia continue to construct luxury and upper upscale brands at a very rapid rate. More than 12 markets in Asia will be see their existing supply grow by more than 40 percent over the next three to four years. The reasons for so much activity is still the rise of the Chinese middle class, which have become travel aware outside of there own country.
The major player seems to be renovations. Do you see this as true still? How long do you think it will last?
For the next couple of years there will be many more renovations of existing hotels than their will be new ground up construction hotels. Most of the reason for that is the change in the financial markets that are favoring acquisition financing over new construction lending. There is a widespread recapitalization of the hotel industry going on and when this occurs fresh capital is often spent on renovations to remain competitive and in good standing with the brands they represent.
Is there any new construction in the pipeline inside the U.S.? If so, where? What does your three-year forecast say?
New construction is pretty soft in the U.S. right now. We have seen and marked increase in early planning projects in the last 12 months which has some forward-looking implications but for now the lack of reasonable return on equity investments in construction the market will remain stalled for the near future.
What are you finding about the state of the industry? Are developers and owners giving an insight to what our future holds?
Owners are looking at investments and developers are getting ready to get ready. Everyone wants a deal and there is capital chasing discounted hotel deals, but at this time most of them are going to the purchase of hotels and then to renovate and reposition them for the up cycle.
Do you see an increase in independent hotel openings?
At this point most of the finest Independents are built outside of the U.S. and in those places they continue to see roughly 25 percent of new openings are independent hotels. In the U.S. our number is about 8 percent of new hotels openings being independent.