California’s hotel sector saw a record low number of hotel developments during 2020, and the early half of 2021 did not show any dramatic improvements, a recent survey from Atlas Hospitality Group showed. However, with more hotel openings taking place in the past few months, the Irvine-based real estate agency remains optimistic about the latter half of the year.
According to the hotel development survey, the number of hotels under construction across the state of California decreased by 32 percent, or from 194 to 132, in the first half of 2021. The number of new rooms also decreased approximately 32 percent, from 26,418 to 17,962. At the same time, the number of hotel openings increased approximately 46 percent, with 51 hotels opening in the first half of 2021. The amount of rooms also nearly doubled from 3,500 to 7,168.
“I think obviously what we saw because of COVID-19 was if a hotel was not already under construction, then everything basically was shut down…We had a huge amount of projects that were anticipating starting construction that just didn’t happen and we had a big jump in hotels that were planned, either getting deferred or just abandoned all together,” Alan Reay, president of Atlas Hospitality Group, said.
While all California markets saw a general decrease in the amount of hotel deliveries during the first half of 2021, some markets fared better than others. According to Reay, California’s coastal markets did particularly well, with record breaking room revenue causing these areas to be in high demand by developers.
“The clients that we have in those markets are experiencing the highest room revenues on record…It is just unbelievable the demand for coastal accommodation. That has done incredibly well and the question is how long will the demand at those rates last,” he said.
San Diego County, for example, saw four hotels totaling 610 rooms delivered in the first half of 2021. The largest of these hotels was The Seabird in Oceanside, which makes up for 226 out of the total 610 rooms. In San Diego County, four additional hotels currently remain under construction, which are anticipated to bring an additional 405 rooms to the area.
“Conversely, the markets that haven’t done as well are business center hotels or hotels that rely on markets for international tourism, so San Francisco, for example, downtown Los Angeles, Anaheim with the closure of Disney and the Convention Center…They’re bouncing back but it’s going to be a longer process,” Reay said.
Looking toward the Inland Empire, however, only one hotel, the StayBridge Suites in Temecula, totaling 124 rooms was built between both Riverside and San Bernardino counties. Currently, Riverside County has 12 hotels with 1,308 rooms under construction. Additionally, San Bernardino County has seven hotels with 948 rooms under construction.
According to the report, San Francisco County reported no new hotel openings in the first half of the year. This is anticipated to improve in the coming years, however, with five hotels totaling 858 rooms currently under construction in San Francisco County.
However, due in part to its size as well as popularity among tourists, Los Angeles County led the way in hotel development with eight hotels delivered. The largest was the 288-room Courtyard Monterey Park. Los Angeles County also continues to lead the state with 38 hotels totaling 6,028 under construction. The dual branded AC Hotel and Moxy Hotel in Los Angeles, with both containing 410 rooms, is the largest hotel project in the County currently under construction.
Looking ahead, Reay said hotel developers likely will continue to see challenges in timing with COVID-19 causing delays in material as well as restrictions causing a slowdown in tourism.
“The cost of construction has skyrocketed across the U.S., but definitely here in California…The hotels that were under construction, a couple things happened there. They were either mid-construction and stopped because of COVID-19 restrictions or they slowed construction down tremendously because they didn’t want to open at a time where COVID-19 and travel restrictions were still in place.”
Despite this, Atlas Hospitality Group predicts this will start to pick up through the latter half of the year as restrictions loosen and travel becomes more accessible.
“If we looked at a lot of those projects that opened in 2021, the vast majority were in April, May and June. I think that in the next six months of the year, we will hopefully see a similar amount of projects being completed, and I think there’s already quite a few that have announced openings in July,” Reay said.