Forecast for New Hotel Openings
Lodging Econometrics has compiled and released its first 2011 Forecast for New Hotel Openings in Latin America, projected to be 132 hotels/23,693 rooms. Adjusted for the global recession, LE has made further downward revisions to its forecasts for 2009 and 2010.
Still, Latin America remains in the midst of a four-year new openings surge that began in 2008. 151 new hotels/26,204 rooms are expected to open in 2010, a cyclical high for room counts. The 2009 forecast calls for 220 new hotels/20,754 rooms to come online, of which 73 hotels/10,678 rooms opened in Q1-Q2.
The reason for this late cycle surge in room counts is because a high percentage of new openings
are much larger beachfront resorts or major hotels in capital cities. Such projects have long development timelines for planning, permitting, financing, and construction, and traditionally come online at the back end of the cycle.
Key Pipeline Metrics
Developer sentiment in Latin America continues to be impacted by the global economic crisis, declines in international travel and earlier health warnings in some areas, all of which have caused precipitous declines in guest room demand and room rates.
A tight lending environment has prevented projects from migrating up the Pipeline towards construction. Now at cyclical lows, construction starts are expected to remain in a low channeling formation into 2011.
Cancellation and postponements, at 45 projects/7,728 rooms, remain elevated but have declined a bit, suggesting that the pipeline is close to having been cleared of the least feasible projects. In the Caribbean, Mexico and Central America, 19 projects having a total of 3,320 rooms were cancelled or postponed. Notably, 12 of those projects were already under construction. In South America, there were 26 projects/4,408 rooms cancelled/postponed, 7 of which had already begun construction.
New project announcements (NPAs) into the pipeline totaled 47 projects/7,925 rooms, a low for the cycle. NPA’s will continue at low levels for the foreseeable future as the present development cycle draws to a close.
Pipeline Summary
In Q2 2009, the Latin America construction pipeline is at 538 projects/93,768 rooms, down 21% by projects and 27% by rooms from the peak in Q1 2008. 287 projects are currently under construction in Latin America. One-hundred and sixty-five of those projects, or 57 percent, are in South America, with more than 75 percent of those in Brazil and Argentina. These projects already under construction will create an increasing flow of new hotel openings through the rest of 2009 and into 2010. In 2011, new supply coming online will taper off a bit and then fade thereafter. Pipeline totals will have by then reached their lows and resettled into a bottoming channel. By then, the global economic recovery should be underway and NPA’s should soon begin to rise.
It is expected that some countries in the region, like Brazil and Colombia, and possibly Chile and Mexico, will see economic recovery rekindle faster than in other developed countries worldwide. A new lodging development cycle, first expressed as the flow of new project announcements into the Pipeline, should revive there quicker as well.