Hotel Development Cost

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JANUARY 2011

HVS HOTEL DEVELOPMENT COST SURVEY 2010
Elaine Sahlins Senior Vice President, HVS San Francisco Consulting & Valuation

HVS Consulting & Valuation | 100 Bush Street, Ste 750, San Francisco, CA 94104, USA

HVS Hotel Development Cost Survey 2010
Elaine Sahlins – January 2011
HVS has tracked hotel construction costs throughout the United States since 1976. The survey considers data for six lodging types: Economy/Budget Hotels, Midscale Hotels w/o F&B (without Food and Beverage), Extended-Stay Hotels, Midscale Hotels w/ F&B (with Food and Beverage), Full-Service Hotels, and Luxury Hotels and Independent Resorts. The 2009/10 hotel development survey reports updated per-room development costs for through the end of 2010.
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The slowdown in lodging construction has affected hotel product types from small budget properties to large destination resorts. When new hotel development resumes, it is likely to begin with those product types that are more easy to develop such as branded limited- and select-service hotels, and then larger and more complex projects will follow as the market strengthens.

SLOWDOWN IN THE HOTEL PIPELINE
From 2006 to 2010, hotel supply grew at a steady pace. As obtaining financing for new construction became more challenging in 2008, many projects were put on hold or cancelled. As seen in the following chart, the decline in the supply growth in 2010 is evidence of this change in the availability of debt. We expect that in 2011 the rate of new hotel rooms opening will decrease even further. Note that not all new rooms in each chain scale segment represent new construction; some room additions are from properties that were converted or rebranded, and may have upgraded or downgraded from other chain scale categories.
CHART 2 - NATIONAL HOTEL ROOM SUPPLY GROWTH – DECEMBER 2006 THROUGH NOVEMBER 2010
Total Change Dec 2006 to Nov 2010 34.0 % 11.0 % 35.9 % (6.9) % % 21.1 % 3.7 % 3.7 % 9.5 % % % % % % %

Dec-06 Existing Supply Luxury Change in rooms % Change Upper Upscale Change in rooms % Change Upscale Change in rooms % Change Midscale with F&B Change in rooms % Change
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