A modestly improving pipeline in the?U.S.?and an explosive one in Brazil have produced a solid year-over-year (YoY) improvement in pipeline totals. At the end of Q1 2013, the Americas pipeline stands at 3,727 projects/488,778 rooms, up 8 percent YoY for projects and 10 percent by rooms.
With the exception of?Mexico?and?Central America, development activity is trending upward throughout the region. The pipeline in the?U.S., with 77 percent of the hemisphere?s pipeline projects, stands at 2,851 projects/355,176 rooms, up a modest 5 percent and 7 percent, respectively, over the cyclical bottom established in Q1 2012. Annualized new project announcements into the pipeline (NPA?s) have been trending upward for six quarters and construction starts for eight quarters as many smaller projects enter the pipeline and move rapidly into construction and towards opening. The trend reversal is a result of improved developer sentiment brought about by their anticipation that the economy would be able to successfully absorb sequestration budget cuts and tax increases scheduled for early 2013 and keep growing, however modestly.
Development in?Brazil?is booming even while the economy is cooling a bit. Brazil has the seventh largest economy in the world but has the fourth largest pipeline. Brazil?s pipeline stands at 369 projects/62,849 rooms. It has been increasing for 13 consecutive quarters and is at the highest level ever recorded. Annualized NPA?s and construction starts are also at the highest levels ever. Excluding the?U.S.?and?Canada, Brazil has more projects and rooms in the pipeline than the rest of the Americas combined.
The development boom should continue late into the decade as Brazil prepares for three huge worldwide tourist events: World Youth Conference in the summer of 2013, which the newly installed Pope Francis will attend; FIFA World Cup Soccer Tournament that will host matches in 12 different Brazilian cities during the summer of 2014; and the 2016 Summer Olympic Games in?Rio de Janeiro.
Canada has the third largest pipeline in the Americas. Development trends generally run in parallel with the U.S. but are more steady and not prone to large swings that define trend tops and bottoms.
The Caribbean and Central America pipelines will remain at low levels until later in the decade. Hotel development in these areas are most often beachfront luxury resort projects, or, occasionally, center-city projects, as has been the case in Panama. For the immediate future, investors view these areas as being ?developed out.? New development won?t accelerate until later in the cycle when the economy, lodging occupancies and room rates more completely recover, signaling a need for new supply.
The pipeline in Mexico peaked in Q2 2008 and has been in decline since. At Q1 2013, the pipeline has 86 projects/11,069 rooms. The annualized total pipeline is at its lowest level in three years. When development trends reverse course, it will begin with smaller select-service properties not larger beachfront resort developments where there is sufficient supply.
Taking its cue from the?U.S., recovery development trends, with the exception of a booming Brazil, should steadily uptick YoY at a modest pace, moving forward into the middle of the decade.