The value of hotel construction starts fell 57% year to date through September versus the same three months last year. Hotel construction spending fell 38% in the fourteen months to September 2009. With September starts more than 75% below the average month during the fall 2005 – summer 2008 hotel building boom, spending will decline a further 7% into next summer. This will make the 2008-10 decline about 25% deeper than the last recession. Hotel occupancy has dropped below 60% and is headed to near 55% a year ahead.

Hotels are not an attractive investment now for commercial real estate investors. Examiners are requiring lenders to write down the capital value of hotel mortgages. Revenue per available room is already down nearly 20% and will fall somewhat further. The improvement in the economy will balance changes in room supply with changes in room demand late next year. However, hotel construction spending will begin rising slowly next summer as project costs increase in a stronger construction environment. Also, renovation work will pick up, much of it the result of hotel ownership changes forced by inability to rollover existing hotel financing.

The hotel building bust is worse for luxury and resort properties than for business and budget consumer properties. These properties were more overbuilt in 2005-08 and their sales are extremely sensitive to income and confidence. Note that this also means that when recovery in resort and luxury hotel sales begins a year ahead that it is likely to be as rapid as the recent collapse.