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New project announcements across the Asia Pacific region fell by 73 % in Q4 2008 from 2007, but India saw a moderate increase according to the pipeline data by Lodging Econometrics

After a 1-2 quarter lag, the economic turbulence being experienced in the rest of the world has now reached the Asia Pacific region in full force. Heavily reliant on their manufacturing and exporting industries, Asian economies are seeing sizable, even historic, contraction, as global demand for goods produced in the region has plummeted.

Several countries, including Japan, Taiwan and Thailand, reported negative GDP growth in Q4 2008. The blockbuster economies of China and India still expect positive GDP growth this year; however the rate of growth will be significantly slower, falling to rates not seen since earlier in the decade. LE expects the macroeconomic indicators to continue trending downward into 2010.

At the end of Q4 2008, Asia Pacific’s total construction pipeline stood at 1,891 projects and 437,374 rooms. Total projects are down 15% and total rooms are off by 14% from the cyclical peak in Q2 2008. The pipeline is decelerating at a greater rate than in almost any other global region largely due to a rapid fall-off in China.

With rising cancellations and fewer New Project Announcements (NPA’s) expected, LE forecasts that the Asia Pacific Pipeline will contract further and not bottom out until 2011 at the earliest

Construction Starts have dropped off rapidly by 82% over the last four quarters to 71 projects/13,325 rooms in Q4 2008. Because accessing financing is so difficult, many projects already in the pipeline cannot migrate forward towards construction, but are stalled in the ‘scheduled starts in the next twelve months’ and ‘early planning stages’ and will likely remain stalled throughout 2009 and 2010 until financing becomes more available.

Project cancellations or postponements in the region are at an all-time high at 99 projects and 33,474 rooms. Of that total, 47 were in China. 18 of the cancellations were in Macau and are attributed in part to new restrictions imposed by the Chinese government on travel from the mainland. Notably, 23 of Asia Pacific’s cancelled projects were already under construction. 12 were in China, with 10 in Macau.

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In response to a rapid change in developer sentiment, NPA’s have declined 73% from the peak in Q4 2007 to 158 projects and 30,934 rooms. India, however, has seen a moderate increase in NPA’s. However, in countries in Southeast Asia and in China, the pipeline of smaller projects has slowed considerably since the peak in Q4 2007 and should continue to trend downward for the foreseeable future.

The future

In 2008, 907 new hotels opened in Asia Pacific, adding 150,559 rooms to supply. This was a cyclical high for the region, due largely to the development boom surrounding the Olympics in China. While not as high, new openings will continue to be elevated. LE is forecasting 640 hotels and130,991 rooms to open in 2009, with 563 hotels and141,839 rooms to open in 2010.

Although LE’s forecast for new openings is still substantial, it was adjusted downward this quarter to account for the steep decline in construction starts and new project nnnouncements, as well as the increase of cancellations. 92% of Asia Pacific’s forecasted new hotel openings are currently under construction.

INDIA AND CHINA’S PIPELINE

Approximately 50% of the Asia Pacific Pipeline is in China, which began its aggressive program of lodging development much earlier than other countries in the region. India accounts for 24% of total Asia Pacific pipeline projects, with 462 projects and 78,140 rooms. The pipeline here is more evenly distributed between the three construction stages, with 38% of its projects under construction and another 41% in early planning. As a result, new openings are set to trend upward over the next two or three years.

India reached a likely cyclical peak for NPA’s in Q4 2008 at 70 projects and 7,908 rooms. This contributed to the slight QoQ increase in India’s pipeline, up 3% by projects and 6% by rooms. However, it is expected that the pipeline will soon top off as the economic crisis catches hold.

While still strong, China’s Pipeline has been declining since its peak in Q2 2008. This is due to the massive wave of development projects timed to come on line for last summer’s Olympics. A significant number of cancellations this quarter, particularly in Macau, has further diminished China’s Pipeline to 938 projects/257,143 rooms. The China Pipeline has declined 24% from the Q2 2008 peak, the largest decline of any country in the world.

A very high 74% of China’s Pipeline is currently under construction. While the country’s new hotel openings peaked in 2008 at 795 hotels and 132,730 rooms, China will continue to see a relatively elevated level of New Hotel Openings over the next two years. However, unlike the rest of Asia Pacific, the rate of New Openings will be trending downward.

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