PricewaterhouseCoopers' research, supplemented by Torto Wheaton Research data, shows that approximately 136,500 rooms began construction in 2006, a year-over-year increase of 64.2%, making the 2006 room starts increase the highest since 1994, when the new hotel construction increased by 67.2%.
The room starts increase of 2006 reflects positive industry fundamentals including the largest revenue per available room (RevPAR) growth since 1981 of 8.5 percent in 2005 and a robust growth of 7.7 percent in 2006. PwC forecasts a 5.6 percent RevPAR growth in 2007 as supply growth slightly exceeds demand growth and average daily rate (ADR) growth slows.
As a result, PricewaterhouseCoopers forecasts supply growth of 1.6 percent in 2007 and 2.3 percent in 2008, the highest two year levels since 2001.
The following graph illustrates the number of new hotel room constructions starts since 1988.
New Hotel Room Construction Starts - 1988 to 2006
Source: Torto Wheaton Research, F. W. Dodge data
In December 2005, PricewaterhouseCoopers forecasted a non-consensus 59.2 percent increase in new hotel construction in 2006, the largest since 1994, as hotel projects put on hold in 2001 were reinstated and developers were expected to respond to record-setting room rate and RevPAR gains. The construction slowdown in 2005 also reflected the increased construction costs, including construction materials and labor as well as cancellations or delays for projects in the South, Southeast and Gulf regions due to damage and planning issues from the hurricanes in 2005.
New U.S. Hotel Construction Increased by 64% in 2006
