The Latin America Construction Pipeline declined for a seventh consecutive quarter in Q4 2009 to 453 projects/74,946 rooms, reaching a new low for the current development cycle. Total projects have declined 34% from the Q1 2008 peak, with rooms down 42%. The Caribbean and South America saw the largest drop-offs from the peak.
Economic declines around the world have negatively pressured travel spending. With tourism and business travel crimped, lodging demand has been falling. Occupancy rates and RevPAR have seen sizeable decreases, particularly in the past year. This, combined with the evaporation of lend¬ing, is leading to increased cancellations and postponements, as well as fewer new Project Announcements, thus depleting Pipeline counts.
LE notes that:- At 223 projects/38,839 rooms, 49% of total Latin American Pipeline projects and 52% of rooms are now Under Construction. Project and room counts are the lowest for the current development cycle.
- There are 119 projects/18,359 rooms scheduled to Start Construction in the Next 12 Months. Counts have decreased for 7 straight quarters, more so over the past year due to the tightening of lending.
- Reflecting the emphasis on larger, destination resorts mostly concentrated in the beachfront areas, project sizes in the Caribbean, Mexico and Central America are larger. 27% of projects greater than 200 rooms have an average project size of 177 rooms. In South America, where there is less concentration of projects and the Pipeline is spread out over a larger region, projects tend to be smaller. Only 20% of projects are larger than 200 rooms, with an average project size of 153 rooms.
- At 133 projects/21,207 rooms, Brazil makes up 29% of Latin America’s projects and 28% of all rooms. With the Olympic Games coming to Brazil in 2016, hotel development there will likely continue to trend strongly. Mexico, at 121 projects/17,984 rooms, is home to 27% of all projects and 24% of all rooms in the Latin America Pipeline. The Caribbean has 69 projects/14,977 rooms, or 15% and 20%, respectively.
Key pipeline metrics
After five quarters of trending lower, Construction Starts are now at a cyclical low. With financing difficult to obtain, project movement up the Pipeline toward construction is stagnant. Cancellations and Postponements continue to be high as tight lending and the negative operating environment impact project feasibility. In particular, projects with more than 200 rooms and those that are unbranded are the most difficult to develop. New Project Announcements (NPAs) are main¬taining a low channel and trending toward smaller-sized projects. Just 12 of the 35 NPAs in the Caribbean, Mexico and Central America regions are larger than 120 rooms, while only 12 of South America’s 21 NPAs were larger than 120 rooms, illustrating the shift to smaller projects that are easier to finance.
LE’S forecast for new hotel openings
After peaking in 2008, a total of 131 new hotels/19,293 rooms opened in 2009. This is the sec¬ond year of cyclically high New Hotel Openings. LE’s revised Forecast for New Hotel Openings expects strong trends to continue with 133 new hotels/18,069 rooms to open in 2010, then an additional 119 new hotels/20,215 rooms in 2011. Near-term growth in New Hotel Openings is driven mainly by the Central and South America regions which are both set to reach cyclical highs in 2011. After 2011, the rate of New Openings will decline rapidly as recent high cancel¬lations, reduced New Project Announcements and falling Construction Starts have depleted the Pipeline substantially.