Worldwide Hotel Room Boom Should Benefit Meeting Planners

The lodging industry is about to go global in a big way, with an anticipated historic increase of new guest-room supply over the next few years.

An expectation of sustained economic growth in key regions, plus a rising middle class in China and India — whose nationals are embarking on more business and leisure travel — are driving hotel companies to increase inventory. Further fueling the potential increase is the current lack of room inventory in developing countries and relatively little new U.S. supply since 9/11.

The bulk of new supply is likely to be in the budget and mid-scale, limited-service categories, mainly targeting transient business and leisure travelers. But there could be effects on meeting groups; groups of 25 or fewer attendees could book meetings at limited-service hotels with some food and beverage capabilities.

The new supply also could ease transient demand for full-service hotels, making groups more desirable to those properties and improving planners' negotiating power. But the disadvantage is that more mid-scale hotels could tempt attendees to stray from booking within room blocks, bringing the specter of attrition penalties.

"The scope of the development is unprecedented," said Joe McInerney, president of the American Hotel & Lodging Association (AH&LA).

Recent announcements illustrate the ambitious inventory expansion over the next few years. Accor, the French company whose brands include Sofitel and Motel 6, expects to open some 200,000 rooms through 2010. This is a 43-percent increase over its 2005 room count and the largest announced increase by any hotelier. Half of those rooms are slated for the economy segment and another one-third for mid-scale. And the BRIC countries — Brazil, Russia, India, and China — get half the openings.

U.K.-based InterContinental Hotels Group — the world's biggest hotel company by room count — has in the pipeline 143,600 new rooms, a 25-percent increase over current inventory. More than two-thirds, or about 99,000 rooms, are slated for the Americas, mostly the U.S. and Canada. The vast majority will be for its limited-service brands, such as Candlewood Suites and Holiday Inn Express.

Hilton Hotels has 100,000 rooms in development that represent a 20-percent inventory increase. Some 90 percent are pegged for the U.S. and Canada, although Hilton expects that its international supply will grow to 30 or 40 percent. About 75 percent of the rooms are for the limited-service Hampton Inn and Hilton Garden Inn brands, with most of the other 25 percent split among the Hilton, Doubletree, and Embassy Suites brands. Hilton added 519 hotels and more than 118,000 rooms this year through its acquisition of U.K.-based Hilton International.

Marriott International plans to add 100,000 rooms from 2007 through 2009, a 20-percent inventory increase. Nearly 70 percent are for North America, driven by both conversions and construction of limited-service hotels. Europe, the Middle East, and Africa will account for the next biggest share, at 14 percent; followed by Asia, at 12 percent; and Latin America, at five percent.

While emerging countries are expected to enjoy the biggest percentage increase in rooms by virtue of their relatively small inventories, more total rooms are expected to be built in developed countries.

As of Oct. 1, the total U.S. new-build pipeline grew to 3,570 projects with 489,380 rooms — nearly double that from the end of 2003 and a 10-percent increase over current total inventory, according to Lodging Econometrics in Portsmouth, NH, which tracks hotel real estate.

China has the second largest pipeline, with 316 projects and 107,725 rooms, according to the firm. The figures reflect only development by national and international hotel companies and all four- and five-star hotel projects, so China's number is likely larger.

Using the same criteria as for China, Lodging Econometrics determined that 161 hotels with 24,589 rooms were in India's pipeline as of Oct. 1. India currently has an estimated 92,000 hotel rooms — fewer than Orlando.

Reality Check
Patrick Ford, president of Lodging Econometrics, warned that a significant number of projects in the pipeline may fail. Historically, he said, up to 25 percent of projects scheduled to break ground within one year fall through, and the failure rate is 50 percent for projects scheduled to start beyond one year.

Nonetheless, Ford said worldwide hotel development has reached historic levels, with U.S. development slated to exceed levels of the last upward curve between 1997 and 2000. "Development in some less-developed countries like China and India is at a fever pitch," added Ford, "and it is also very strong in the U.S. and U.K."

Sean Hennessey, president of New York-based Lodging Investment Advisors, said U.S. hotel development is focused primarily on limited-service hotels in the suburbs of big cities and in second- and third-tier cities. "A number of companies are targeting Courtyard by Marriott; they want to be the next Courtyard," he said, citing such competitors as Hilton Garden Inn; Wyndham Garden Hotels; and the new Hyatt Place brand that's converting 120 AmeriSuites for debut next year.

The limited-service hotels target middle managers and salespeople among business travelers, plus leisure travelers, according to Hennessey. Groups are something of an afterthought at these properties, with usually just one or two meeting rooms suitable for up to 25 attendees. Such hotels, though, could serve firms for training and regional sales meetings.

Despite Ford's warning about the percentage of projects that may fail, the world economic and travel outlook favors hotel developers. The global economy is expected to grow an average of 3.4 percent annually from 2007 through 2010, according to economic forecaster Global Insight, of Waltham, MA.

China, the world's fourth largest economy, will be the pacesetter with an 8.4-percent average annual GDP growth from next year through 2010, according to the firm. India, the 12th largest economy, will follow with six-percent average annual growth. The U.S. is expected to dip next year to 2.4-percent growth from 3.3 percent this year but then rebound to 3.3 percent in 2009 and 2010.

This will translate into more travel. The United Nations World Tourism Organization (UNWTO) estimates that overseas arrivals worldwide will increase 25 percent from 2005 to 2010, to one billion arrivals.

International travel to developing countries in East Asia and the Pacific, South Asia, the Middle East, and Africa are outpacing the average world growth in international travel by nearly 20 percent, according to the UNWTO. By 2020, East Asia and the Pacific will supplant the Americas as the second most popular destination for international travelers, behind Europe.

Moreover, in emerging markets like China and India, domestic travel, fueled by growing affluence, accounts for most travel, and the percentage will only increase. The number of Indians who can afford to stay at hotels, according to the Indian Association of Tour Operators, has nearly doubled in the past decade to about 350 million — larger than the U.S. population.

Customer loyalty thus figures heavily in emerging-market development strategies at hotel companies, according to Hennessey. "They want to be the brand of choice for those emerging markets, and they're introducing product not only to serve people who live and travel in those countries, but also to get a leg up when those people begin to travel around the world."

The Final Analysis
Whether the anticipated boom in room inventory works to the benefit of groups ultimately depends upon whether demand keeps pace with the supply.

AHLA's McInerney expects demand would balance out supply. But Kirk Kinsell, InterContinental Hotel's chief development officer for the Americas, said, "Adding supply does take some pricing pressure off."

Julie Carroll, vice president of partner and industry relations for BCD Meetings & Incentives, in Chicago, said the increase in room inventory probably won't help planners next year but could ease the crunch in 2008 and beyond. "More supply will definitely make it easier to find space," said Carroll, "but it's too soon to say that it will be a cakewalk for buyers."

Contact Marshall Krantz at [email protected]

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