Global Hotel Supply: What drives hotel development and how has worldwide inventory evolved?

Tourism arrivals can drive significant inventory growth

The Middle East has undergone a tourism evolution in the past 10 to 15 years, highlighted by recent arrival figures. In 2019, the Middle East reported 64 million international tourist arrivals (which represented 8% growth year over year), and it was recently reported that they will reach 150 million visitors annually by 2030 (source: World Tourism Organization). Understandably, all these additional travelers need a place to stay, and this is reflected in hotel inventory.

We’ve used Dubai as a case study to illustrate this point and, between 2006 and the start of 2020, the market’s available inventory has increased 140%. To add context to this, London has risen just 33% in the same period. Over the last ten years, a total of 159 hotels and 48,399 rooms have opened in the emirate—representing 65.2% growth on the 462 hotels and 74,203 rooms available during the start of 2010. Inventory will continue to grow with tourism, and there are just over 60,000 rooms in Dubai’s under contract pipeline at time of writing.

Mega events mean mega room growth

Landing a major event is like hitting the jackpot, with a significant influx of visitors almost guaranteed for that brief period, and the majority needing somewhere to stay. From a hospitality perspective, confirmation of a host city often raises questions and opportunities to ensure the accommodation infrastructure can support the event.

As we discussed one year ahead of Euro 2020, the impact of sporting events can significantly impact room openings. Copenhagen would welcome a 20.0% increase on existing inventory in less than three years leading up to the event, while Bilbao opened its first rooms since 2011 in preparation for kick off.

Similarly, the 2005 announcement that London would host the 2012 Olympics had a noticeable impact on inventory in the years that followed. Between 2007 and 2012, more than 20,000 rooms opened—peaking in the event year when upwards of 7,000 new rooms were added to the market. Rio de Janeiro succeeded London as the 2016 Olympics host, which would come just two years after Brazil hosted the 2014 FIFA World Cup. From 2010 to 2016, Rio welcomed an additional 10,751 rooms and more than 9,000 came in the 2014-16 period. However, the issue is often filling the rooms once the event has passed, and in Rio’s case, they were not converted for other purposes.

Subsequently, no new projects opened in 2017 and supply actually decreased by 4.2% in 2018 as room closures outpaced new inventory.

From a non-sporting perspective, global events don’t come much bigger than EXPO, and with Dubai set to host the 2020 edition it’s the perfect time to analyze the inventory growth of its predecessors. Shanghai, the 2010 host, welcomed almost 69,000 new rooms between 2006 and the end of the event year. Putting this into context, total rooms increased from roughly 142,000 to just under 200,000. In the smaller market of Milan, however, only 3,392 new rooms opened from 2010-2015—although it’s interesting to note that 1,246 of those came in the event year.

The fastest-growing markets over the past ten years

When a decade ends, it’s the perfect time for retrospect, and wouldn’t it be great to know where the most rooms have opened in that 10-year time period? AM:PM is the tool to answer that exact question. In short, the answer is China. Excluding countries and provinces, the top ten markets in terms of actual room growth comprise seven Chinese markets.

The rapid rise of China’s economy, driven by exports, has catapulted it into second place when it comes to global GDP. Although the rate of growth might have slowed in recent years as China adjusts to its new status, it is comfortably the closest to the world-leading U.S. economy. Amid this, 850 million people have been lifted out of poverty, there is a growing middle class in the country and education levels have improved.

From a hospitality perspective, this has almost certainly played a part in the rise of domestic travel in China. In 2018, 5.54 billion domestic tourist trips were recorded and represented a 10.8% increase year over year. In terms of spend, this translated to US$750 billion—12.3% growth on 2017 levels. Inbound tourism, meanwhile, has also evolved in recent years and fed into both the economic and accommodation landscapes. In 2017, China was ranked second in terms of travel and tourism’s contribution to GDP, and this is no surprise given total visitor arrival numbers have grown 20% from over 133 million to just under 161 million (sources: World Travel & Tourism Council, Oxford Economics). As we’ve mentioned above, an increase in visitors often requires an increase in hotel inventory.

Is ‘the rise of budget hotels’ a myth?

The rise of the budget hotel has been debated periodically over the past decade, with shifts towards spending-savvy travelers and changing expectations often discussed as drivers of change. However, in terms of global inventory, STR census data reveals that the largest growth has come in the upper hotel classes, although it is important to note that the Economy class came from the highest base in terms of December 2009 room numbers.

Returning to the U.K. and China, however, highlights that the budget movement is indeed gaining momentum in some key markets. The Economy class has grown 47% in the U.K. over the past decade, with the popularity of chains like Premier Inn and Travelodge influential in this evolution. In China, where all classes have reported significant growth, the Economy class’ size has increased 100%. The U.S. hospitality industry, on the other hand, has reported a decline in the number of economy rooms—the only class to have decreased.

Interested in the hotel inventory picture in other markets? Read about the U.S., Greece, and openings ahead of Euro 2020. 
 

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