Report: California’s Hotel Market Continues to Trend Upward
By Joseph Pimentel
Despite rising construction costs, hotels across California continue to open at a robust pace, more are still under construction and there are plans to build on the horizon.
Twenty-six hotels opened in the first half of 2018, the same as the first six months of the previous year, according to Irvine-based Atlas Hospitality Group’s midyear report.
In that same period, the number of hotels under construction has jumped by 41% from 130 to 183. New rooms under construction rose by 42%, from 18,271 to 25,872.
In Orange County, three hotels totaling 445 rooms opened in the first six months of the year. Nine hotels with 2,391 rooms are under construction and there are 63 hotels with about 10,750 rooms in the planning stages.
In Los Angeles County, four new hotels with 727 rooms opened, 37 hotels with 5,631 rooms are under construction and 246 hotels totaling 37,682 rooms are in planning.
San Diego County added four new hotels totaling 627 rooms. There are 21 hotels with 3,410 rooms under construction and 84 hotels totaling 17,080 rooms are being planned.
San Francisco only had one hotel with 42 rooms deliver in the first half of the year. But five hotels totaling 1,110 rooms are under construction and 41 hotels and 6,191 rooms are in planning.
Atlas Hospitality Group CEO Alan Reay told Bisnow record revenues and profits on existing hotels are fueling the hotel boom statewide.
In Orange County, the occupancy rate is 79% to 82% depending on the time and revenue per available room is $155 to $161, according to CBRE.
Los Angeles and San Diego occupancy rates hover in the high 70% range.
A June STR report shows nationwide occupancy is 66.2%, the average daily rate is $128 and RevPAR is about $85, showing California is far outpacing the rest of the country.
“We are now into our ninth year of increasing RevPAR numbers,” Reay said. “The strong business economy and increase in leisure travel are all contributing to positive factors and the view that over the long term, California hotels will continue to be a great investment.”
Reay said despite construction costs rising by more than 20% from the previous year, the increased expense is still not deterring investors and developers from building hotels.
“If we start to see a downturn in RevPAR and a slowdown in the economy, that could have a ripple effect and cause lenders to shut off the flow of funds into new construction,” Reay said. “We forecast that for at least the next 18-24 months we will continue to see a very strong pipeline of new rooms.”