Signs of Life Overseas

The European economy continues to struggle but there may be a recovery in sight for hotel development. The Europe construction project pipeline is down year-over-year by 5 percent yet shows a slight upward trend off the cyclical bottom of 697 projects and 117,964 rooms set in the third quarter of 2010. The pipeline stands at 767 projects and 125,764 rooms for the second quarter of 2012.

The internal metrics that predict future pipeline growth have shown slight increases for more than two years. Projects under construction have been on the rise for 11 quarters. Annualized construction starts and new project announcements have also been trending upward for 11 and eight quarters, respectively. The improvement in these metrics could mean the bottoming formation is complete and that the pipeline is entering the nascent stages of a new development cycle.

Brand conversions and announced renovations are very strong, as they tend to be at the start of a new cycle, reaching the highest levels in five years.

Two countries with growing economies, Russia and Turkey, are offsetting pipeline declines in the higher-income countries. Russia has the eighth largest pipeline in the world, second only to the United Kingdom in Europe, which itself ranks sixth worldwide.

Russia’s pipeline is growing and stands at 100 projects and 21,309 rooms, up from 50 projects at the end of 2007. Turkey has 50 projects and 9,094 rooms, up from 22 projects five years ago. Conversely, the U.K. has declined by 159 projects from its peak, while Spain has declined by 122 projects.

Europe has always been fertile ground for global franchise companies looking to extend their brand distribution. With 119 projects and 16,554 rooms, Accor has the largest pipeline in the region. Hilton’s pipeline is ascending and follows closely with 112 projects and 19,360 rooms. Hilton’s new hotel openings will exceed all other companies over the next three years. IHG has 67 projects and 11,155 rooms in its construction portfolio, while Carlson stands at 56 projects and 11,277 rooms. Marriott follows with 24 projects and 5,080 rooms. Marriott’s construction portfolio averages a noteworthy 212 rooms in project size and consists primarily of luxury and upper upscale hotels in major cities, most with long-term management agreements.

The economic and political uncertainty that hinders Europe continues to be a major deterrent to any marked change in developer activity levels. The widespread austerity programs have not been generating economic growth at an acceptable pace. It’s hoped that with a new year, political leaders in the region will better emphasize pro-growth policies that will stimulate economic expansion, create more jobs, improve consumer sentiment, and stimulate business lending that will provide a boost to development. Hopefully, a new real estate cycle will then begin in earnest, starting in the high-income countries.

Patrick “JP” Ford is a senior vice president of Lodging Econometrics, Portsmouth, N.H. For more information, please email

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