HENDERSONVILLE, Tennessee--Frequently, we focus on new ground-up hotel development without examining other activities that impact total hotel and room inventory. Hotels close because of conversions to other nonhotel uses, such as condotels or timeshare, or simply shutting down the property (perhaps because hotel demand has moved away from the location, rendering the property no longer profitable). During a renovation process, properties might add a new wing to increase their existing room count or reduce the number of rooms to enlarge the ones they already have. Branded hotels also might convert their properties to other brands in a different chain scale or to independent hotel status to reduce or eliminate franchise-related fees.
Between January 2005 and August 2008, there has been a net change in openings, closures, conversions, room additions and room deletions resulting in 1,472 new hotel properties with 119,316 total hotel rooms being been added to the U.S. lodging market. During this period, 3,394 new hotels (343,998 rooms) opened, while 1,922 properties (157,265 rooms) closed their doors for hotel use.
In 2005, 855 properties (66,587 rooms) closed and were removed from the U.S. inventory versus 726 hotels (71,781 rooms) that were added through new hotel construction. The midscale-with-food-and-beverage and independent sectors closed more hotels and rooms than they opened. Because the midscale w/o F&B chain scale has been highly attractive to franchisees, it reported the highest hotel and room count growth (160 hotels, 9,275 rooms) during 2005.
During 2006, the luxury chain scale reported the largest net percentage growth of properties (5 percent) and rooms (6 percent) of all chain scales. Although independent hotel closures were significant in 2006, this segment’s number of hotel closings has been declining since 2005. The independent segment’s net loss of hotels was 399 properties in 2005 versus a net 343-property loss in 2006. The only other chain scale that reported declines in room counts was the midscale w/F&B scale with a net reduction of 45 properties (19,914 rooms) in 2006.
2007 showed strong growth overall with a net gain of 710 properties (63,296 rooms) in the U.S. This primarily was due to new construction in the midscale w/o F&B chain scale and a combination of new construction and conversions into the economy chain scale from other brands and independent properties. As in 2006, only independents and midscale w/F&B chains experienced net property and room count losses in 2007 (independent, 83 hotels, 2,672 rooms; midscale w/F&B, 62 hotels, 18,209 rooms).
As of August 2008, a net of 758 hotels with 82,806 rooms opened. The midscale w/o F&B chain scale reported a net gain of 315 hotels, representing a 3.8-percent increase in supply for the segment. To date, the upscale chain scale has an impressive 5.6-percent net property growth (158 hotels), and the economy chain scale has a net increase of 143 hotels (1.5 percent growth). Luxury chains continued to grow the available inventory of rooms for rent at a rate of 2.9 percent (4.2 percent growth in hotels) for the first eight months of 2008.
Because of favorable financing in the past, all segments continue to show robust growth in new construction. But current lending sentiment as well as the instability of major financing institutions likely will suppress new construction openings well into 2009. Inability to meet debt service, pay operating expenses or lower franchise fee structures might force hotel owners to convert their hotels to independents or other brands or even close their properties. Although it has been prudent to monitor the supply pipeline and new hotel openings, these economic times call for operators and the industry at large to keep a close eye on other hotel and room inventory activity, such as closures and conversions.