The Hotel Times - December 2008 - (Page 10)

COVER STORY: GLOBAL ECONOMY kets have had difficulty pricing the risk of new construction in today’s market. Most traditional construction lenders are struggling with their own liquidity, and it is unlikely they will place many bets on new construction in a slowing market,” Eaton said. While a falloff already has been noted in the global pipeline, projects that are already in the ground are expected to finish, according to a Lodging Econometrics’ Global Construction Pipeline Report released in November. The report also forecasted new hotel openings across the world will actually accelerate over the next two and a half years despite the global economic slowdown. However, the number of rooms coming on line isn’t the problem, said Lodging Econometrics president Patrick Ford. With a softening already apparent, something that’s only happened three times is expected to be seen in 2008 and in 2009—a negative growth in demand. “The story really is the disappearance of demand,” Ford said. Hurting everywhere Although lodging markets vary, Eaton said demand is directly tied to a country’s GDP and the anticipated slowdown in the economy. “We begin with the inescapable reality that the entire world will suffer a deep recession next year. It’s both a demand and a supply problem—for all regions. Regions that trade larger percentages of their economies (China, India, Western Europe) will be more affected by a reduction in two-way travel. Hence, fewer hotel stays,” Eaton said. Thorniley predicts developed Western markets will be worst hit, but emerging markets will not escape unscathed. “Marginally better off will be the 10 The Hotel Times December 2008 Middle East and China— Forecasted GDP growth scenarios marginally,” Thorniley 2009 2009 2009 said. “They will be the Best Middle Worst 2010 Global 3.5 3 2.6 3.9 most cushioned, and in a moderate scenario, Russia Emerging Markets 6.3 5.2 4.5 6.9 and Moscow could hold USA 0.1 -0.2 -1.5 1.2 up relatively well.” Eurozone 0.0 -0.4 -1.7 1.0 The softening felt UK -0.2 -0.5 -1.8 0.8 around the world is a diChina 8.8 8.2 6 8.8 rect reaction to what’s Russia 5.8 5.2 4.3 5.5 happened in the United States, Ford said. And CEE (excluding CIS) 4.6 4.0 3.2 4.5 though many global econSource: Daniel Thorniley, The Economist Group omies over the last year stressed their independence and decoupling from the U.S., will know more at Christmas and in [the Ford said today’s events show that the first quarter of] 2009,” Thorniley said. opposite is the case. “This is proving that is absolutely not Can deals get done? true. The U.S. is the lead economy world- With the right brand, infrastructure, dewide,” he said. “That is fundamental to sign concepts, reservation systems and management team in place, Ford said it what is happening at the moment.” is possible to succeed in the global econWhere’s the end? omy, even as it stands today. While the bottom may be within sight, Finding the right deal and getting it Ford said the world definitely has not hit done will remain a global challenge. it yet. However, the U.S. has put an eco“Honestly, it’s a guessing game,” nomic structure in place to at least start Eaton said. “The best knowledge is local correcting the downslide. knowledge … a market-by-market per“In the United States, most of the spective. There are deals out there.” steps that are necessary to solve the bankEaton said sellers will need to be realing crisis and the lending crisis have been istic with pricing, while buyers will need put into motion. It takes months for it to to realize lower prices will come with play out and to show some effect,” Ford competition and a strong capital plan said. should be established first. Even with that effort, Ford said he Ford also noted that some financing, doesn’t expect consumers to return until though expensive, still is available. a solution to the housing crisis is visiAnd with the lodging industry still ble, and Thorniley said there still are too coming off a record year in 2007 and many unknowns to guess when a recov- having survived recessions before, he ery will begin. predicted it may be down, but definite“There is still a 25-percent chance ly not out. that we go into a huge slump, with neg“When the economy bounces back, ative growth lasting until 2012, all busi- so too will the lodging industry,” Ford ness suffering, the worst since 1929. Best said. hmm@questex.com case is that we just have a recession. We www.TheHotelTimes.com http://www.TheHotelTimes.com

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The Hotel Times - December 2008

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