Number of New Spa Projects in Development Declines


Experts in the spa industry are noting a sharp decline in the number of spa project moving forward, especially in high-end hotel and resorts. According to Aquatic Designer Fred Baker of Olsen Lavoie Architects: 'Project delays as reported by developers are widespread. 'Many multi-million dollar spa projects are on hold or cancelled.'

Construction of the two 320-passenger Canyon Ranch cruise ships is postponed indefinitely, according to a recent article in the New York Times. More expensive labor and materials are increasing construction costs and, with higher interest rates, fewer projects 'feasibility out.'

'The primary contributor to the fall-off in the Pipeline is the shrinking availability of financing,' said Patrick Ford of Lodging Econometrics. 'The trend toward much tighter lending standards for new lodging construction, which began with the 1998 crisis, is now a very difficult situation for developers.'

The latest Federal Reserve Senior Loan Officer Opinion Survey stated that a net 59.7% of bank respondents continued to tighten lending standards for large and medium-sized companies in 4Q00, up from 43.8% in 3Q00 and a mere 11% at the end of 1Q00. The current level is the highest since the inception of the survey in 2Q90.

Lodging Econometrics (LE), a Portsmouth based hotel real estate company, this week reported an almost 20% decline in the number of hotels in the Active Development Pipeline - those Under Construction and In Permitting -in the fourth quarter (4Q) of 2000.

The continuing slowdown in the economy is also seen as a major contributing factor. Developers are far more cautious given the uncertainty of the current economic environment. The 4Q00 GDP declined to 1.4%, the weakest performance in more than 5 years since sinking to 0.8% in 2Q95. Economic growth in the first quarter of 2001 is expected to be near zero.

Concerns about declines in capital spending by businesses, rising job layoffs, record levels of consumer debt, and a sharp decline in consumer confidence also serve to increase developer conservatism since they are leading indicators of future softening of demand for luxury services.