The cost of travel has fallen sharply since this economic downturn began. New supply of hotel rooms has been growing for several years. But it abruptly stopped in the last 12 months. Prices will rise in the future, as demand for travel comes back.
Worldwide from Q4 2007 to Q4 2008, construction starts of hotels rooms fell from 247,000 rooms to just 73,500 new rooms. New project announcements dropped from 416,400 new rooms to just 138,800. And 148,900 rooms were cancelled.
This is an industry that slammed the brakes, and growth is 60-75% smaller in just one year. I could not find statistics for the level of obsolence, but assuming that a third of the new rooms are ‘replacement/renovation’ and a 10% rate of inventory destruction, the future supply of hotel rooms will mean higher prices for hotel owners are in the making.
I keep seeing signs of ‘future inflation’ both monetary and real. That supply in all industries has been halted, while a world population that is exploding, and demand that is being deferred and pent-up. The inflation spiral will be steep when the present maliase of consumer confidence subsides.
Housing, whether in the form of lodging or permanent, may be the most downtroden component of our economy, but it is also the area of the greatest pent up demand. We have been hearing stories of families ‘moving in together’ to temporarily save money for future home purchases. Of people ‘down sizing’ in hopes of up sizing soon. Of kids staying at home longer. Eventually we all grow up and find our own place. Maybe the McMansion is dead, but the dream of home ownership is still very much at the core of the American Way of life.
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