The supply of new hotel rooms in the U.S. could accelerate in the next couple of years if, as economic trends indicate, construction and real estate prices decline, according to a new report by PKF Hospitality Research, Atlanta.
“Should construction costs decline by 5 to 10 percent, the potential exists for the supply growth to exceed demand growth during the next two years,” states the report, called, “The Hotel Supply Conundrum” authored by John Cargel, PhD, senior advisor at PKF Hospitality Research and a professor at the Cornell University School of Hotel Administration. That would be good news for meeting professionals who are currently operating in a marketplace where demand is high and the rate of new supply is low, as detailed in this article, which appeared in the April 2006 issue of . The large gap between demand and supply has contributed to higher hotel prices in many U.S. destinations.
While room rates and revenues have increased steadily over the past four years and the value of hotels has gone up, construction costs “stayed one step ahead making many hotel development projects unprofitable,” writes Cargel. The high cost of construction has created a “huge bulge” of hotel projects stuck in the early planning stages of development.
However, several economic trends, including a slow down in the real estate market and a boom in the production of building materials in China, could reduce construction costs and create favorable conditions for developers to move forward with new hotel development, the report states. Of course, if construction costs increase, then there will be even more congestion in the construction pipeline. The direction of land, labor, and materials costs over the next few months will determine whether or not these projects will move past the planning stage in the near future.