Report: California Sees Record Number of Hotel Developments in 2021 Despite Rising Construction Costs

Atlas Hospitality Group, Marriott, Hilton, Los Angeles, CitizenM Los Angeles, Westin Anaheim Resort, Anaheim, JW Marriott, Riverside, San Bernardino, StayBridge Suites Temecula, Yaamava Resort & Casino, Highland, San Francisco, CitizenM San Francisco Union Square

By Catherine Sweeeney 

California’s hotel industry ended the 2021 year on a positive note, with a new record high of hotels opening across the state. According to a year-end hotel development report from Atlas Hospitality Group, new developments have been popping up throughout 2021 as investors weigh the cost of new construction against existing properties.

According to the report, the state set a new record for the number of hotel room openings, with a total of 12,027 rooms across 88 hotels completed throughout 2021. However, this is likely due to the rising cost of already existing hotels. According to a 2021 Mid-Year Hotel Survey, also by Atlas Hospitality Group, the entire state saw new demand for hotels, bringing the total dollar volume of hotel sales up 450 percent to $5.2 billion. 

“Typically, we find that construction [of] new hotels really mirrors what is happening [with] values in sales prices. When we have a market that has gone down in value, and you can typically buy multiple hotels at below replacement costs, that’s when we start to see a slow down in new hotel construction. What’s happened in 2021 is record values now for hotels, which is very surprising seeing as we’re coming off some of the worst downturn we’ve ever seen in living memory in terms of what happened in the market with COVID-19,” Alan Reay, president of Atlas Hospitality Group, said. 

However, construction costs remain high, leaving many developers to find alternative ways of cutting costs. Overall, the survey found that the most common hotel product delivered in 2021 were ones that limited operating costs. For instance, the report showed that extended stay hotels proved to be among the most popular property types as costs can be lowered through the lack of daily maid service and guests being able to cook for themselves in provided kitchenettes. 

Leading the way were Marriott-branded hotels, which offer a number of limited service and extended stay collections. According to the report, 3,866 Marriott rooms and 34 Marriott hotels were developed in 2021. Currently, 4,797 Marriot hotel rooms are also in construction across the state.  

“It isn’t that the construction costs have suddenly gone down. They’re up anywhere from 25 to 35 percent higher than they were five months ago, but the developers are looking at what prices are being paid for existing hotels and they’re saying that even with these increased construction costs, the deals are penciling for them,” Reay said. 

Of the new developments this year, most were observed in Los Angeles, primarily due to its size as the largest county in the state in terms of its population. In total, the county reported 21 new hotels with 3,249 rooms developed in 2021, a 195 percent room count increase from the 1,101 rooms delivered in 2020. Of the hotels delivered in 2021, the 315-room CitizenM Los Angeles was the largest to open in the county. 

While Los Angeles County reported the most hotels in the state, the largest hotel to open in the state was the 613-room Westin Anaheim Resort. Anaheim led the way in terms of largest hotel for the second year in a row. In 2020, the 466-room JW Marriott also opened in Anaheim. 

Despite these numbers, many downtown areas remain struggling due to the tourism industry revolving primarily around business and convention traffic. San Francisco was particularly affected by this due to its large tech industry. The county only reported one new hotel opening in 2021, the 195-room CitizenM San Francisco Union Square. However, the area is likely to see more in 2022, with 51 hotels currently in planning.

Across the state, hotels are continuing to be developed, leading many to feel optimistic about the future of the state’s hospitality industry. Currently, California has a total of 1,250 hotels and 164,352 rooms in the planning stages. Additionally, 121 hotels and 15,338 rooms remain under construction. 

“It seems like investors and developers have brushed [high costs] aside and said, ‘we’re looking forward to 2022 and 2023, and we really think there’s going to be a strong rebound in the hotel industry,’” Reay said. 

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