Lodging Econometrics (LE) in its mid-year report to the Lodging Industry released its Supply Side Forecast for 2008, for the first time.

LE forecasts that 1,079 New Hotels will open in 2008, having 131,517 rooms. It’s a 2.8% gross addition to supply, prior to any hotel removals from the census for conversion to other real estate usage.

LE also made minor adjustments to its previously released ’06 and ’07 forecasts after reviewing over 3,400 projects in the Construction Pipeline with individual developers and re-verifying anticipated construction start and completion dates with various brand managers.

LE’s president, Patrick Ford, said, “Construction Starts for the last four quarters accelerated to 976 hotels/125,540 rooms, a 50% Year-over-Year (YoY) increase, and the highest level for this cycle. It reflects a higher pace of New Project Announcements (NPA’s) over the last six quarters and is an indicator that projects are now migrating forward more rapidly through the Pipeline.”

At the end of the second quarter (2Q06), the total Construction Pipeline stood at 3,436 projects/ 463,629 rooms. It’s a new high for this cycle but about 15% below the peak set in 1998. That peak could still be exceeded in 2007 if rising interest rates don’t seriously curtail development.

While projects Under Construction are 40% below the ’98 peak, 1,582 projects are Scheduled to Start Construction in the Next 12 Months. Ford said, “That’s near below the record level set last quarter and another indicator in support of an accelerated forecast for New Openings in ’07 and ’08.” Project counts in Early Planning are still modest and are well below previous peaks.

374 new projects were announced into the Pipeline in 2Q06, down 206 projects from the 580 reported in the 1st Quarter. It’s the lowest NPA count in six quarters.

Growing geo-political concerns, slower economic growth, a less confident consumer, skyrocketing costs of travel and rapid increases in operating costs – for labor, benefit programs, property insurance, energy and property taxes – are causing developers to pause.

Any new projects announced today would open beginning in late ’08 or early ’09, a time when the economy would likely have softened, and a time when 70-80% of the upside operating potential for this lodging cycle would have already been attained.

In 2Q06, NPA’s were down 206 projects QoQ. 143 projects were attributed to the nine leading franchise companies, as growing developer concerns showed up in a slower pace for newly executed franchise agreements.

Nonetheless, Total Pipeline growth was still positive as the nine companies showed an over all increase of 60 projects. Marriott’s Construction Pipeline showed the biggest increase, growing by 32 projects, followed by InterContinental with 26, Choice with 22 and Hilton and Starwood with eight each.

For Total Openings in ’06, Hilton will open 32,089 newly constructed or reflagged rooms, InterContinental: 25,756, Marriott: 20,030, Choice: 17,714, and Starwood: 13,473 rooms.

The Top 25 Markets have about 30% of the industry’s existing guestroom census, yet they are scheduled to receive just 24% of the New Supply coming on line in ’06, and 28% in ’07. In the first half of ’06 (1H06), occupancies are currently running 9.6 percentage points higher than the remainder of the industry, room rates are some 38% higher and RevPARs are an amazing 60% higher.