by Calculated Risk on 7/09/2008 06:42:00 PM
Wednesday, July 09, 2008
Yesterday we focused on strip malls, and the probable impact on malls of the imminent Steve & Barry's BK (now official). For more on the impacts on malls, see this story from MarketWatch: Steve & Barry bankruptcy further pressures malls
Lets look at lodging today. A Goldman Sachs research note out this afternoon mentioned that the average US hotel occupancy rate over the last four weeks was 65.9%, down three percentage points from the same period one year ago. Goldman further noted that YoY comparisons of vacancy rates have been deteriorating all year.
This is more bad news for commercial real estate construction. Based on the recent building boom, lodging was even more of a bubble than multimerchandise shopping!
Click on graph for larger image in new window.
This graph shows the investment in office buildings, multimerchandise shopping, and lodging over the last ten years (as a percent of GDP). Note: data from the BEA. The BEA started breaking out office and multimerchandise shopping in 1997.
Lodging and multimerchandise shopping saw the largest percentage booms, while office space was less than the office boom in the late '90s. These are the three categories of commercial construction that are probably the most overbuilt - and will probably see the biggest declines in investment.
This data fits with the forecast from American Institute of Architects chief economist Kermit Baker:
"On the commercial side, best I can tell the problems are in all of it - offices, retail, hotels. I think we will see a prolonged decline."
Kermit Baker, CNNMoney May 17, 2008
"[W]e’ve seen a dramatic contraction in design activity in recent months. ... This weakness in design activity can be expected to produce a contraction in [commercial and multifamily] construction sectors later this year and into 2009.”Kermit Baker, June 18, 2008