CoStar
07/30/18

More Hotels on the Way in San Diego, Orange Counties
By Lou Hirsh

http://www.costar.com/News/Article/More-Hotels-on-the-Way-in-San-Diego-Orange-Counties/203167

Thanks in part to a still-strong national tourism economy, hotel development pipelines remain robust in Southern California’s San Diego and Orange counties. A new mid-year statewide report shows those two areas trail only Los Angeles County within the golden state for the number of hotel rooms under construction and in planning.

Atlas Hospitality Group, an Irvine, CA-based brokerage and research firm, noted San Diego County had 21 hotels with 3,410 rooms under construction at the mid-point of 2018, the largest of which is the 400-room InterContinental, set to open later this year on the downtown San Diego waterfront.

The San Diego region had another 84 hotels in planning, up 11 percent from a year ago, with a total of 17,080 rooms, up 13 percent.

Just north in Orange County, there were nine hotels with 2,391 rooms under construction, including the 613-room Westin Anaheim Resort. That region had another 63 hotels in planning, up 26 percent, with 10,756 rooms, up 3 percent.

All of this is happening after California hotels have experienced nearly eight straight years of revenue and occupancy growth, as the industry continues its recovery from the severe 2009-2010 nationwide downturn spurred by the onset of the Great Recession. In some key hotel markets of Southern California, metrics such as occupancy and room pricing have now grown well beyond pre-recession levels.

Atlas President Alan Reay said that in the 25 years he’s been tracking California hotel trends, he’s rarely seen developers as bullish as they currently are about the state’s prospects, particularly in coastal hotel markets.

“I run across developers who say, ‘We don’t know how long this is going to last and yes, we know there’s eventually going to be a downturn, but we’re planning for the long term,’ ” said Reay.

Developers’ optimism is reflected in the latest industry performance metrics. According to research firm STR, U.S. hotels posted total revenue topping $80 billion in the first half of 2018, up 5.8 percent from the same period of 2017. The national hotel occupancy rate was 65.9 percent at mid-year, up 1 percent from the same time a year ago.

In San Diego County, STR reported that hotels tallied more than $1.4 billion in first-half revenue, up 4.1 percent from a year ago, as occupancy reached 79.1 percent, for a 1.7 percent increase. Orange County hotels racked up nearly $1.3 billion in revenue, up 4.4 percent, with properties in the region 76.9 percent occupied at the mid-year point, down 0.8 percent.

Atlas reported that 2017 was a record-breaking year for California hotel development, and 2018 is on track to eclipse it, with lenders and developers maintaining favorable long-term outlooks for the Golden State’s market fundamentals. Rising hotel property values are expected to help offset construction costs that have risen 20 to 25 percent over the past year.

Barring a major event that jolts the overall travel and tourism economy, Reay said current state and nationwide conditions are likely to remain in place for at least the next 18 to 24 months, keeping developers interested. California’s key tourism hubs, as well as others on the West and East Coasts, are benefitting from still-strong corporate travel and convention business, as well as leisure travel business that does not show significant signs of tailing off.

Reay said that the leisure side, in fact, is being bolstered by a growing contingent of travelers from Asia, particularly China, who are part of a rising middle class there with more money to spend on overseas vacations. That trend especially benefits California’s coastal hotel markets, including San Francisco, Los Angeles and San Diego.

It also boosts room bookings in places like Anaheim, home of Disneyland, which is already a magnet for international visitors as the world’s second-most-visited theme park. Reay noted several of the upcoming new Orange County hotels are right near Disneyland, which is anticipating even more traffic from upcoming Star Wars and other on-site attractions.

Another big believer in hotel demand growth is the Legoland California Resort in Carlsbad. The family-friendly park recently opened a 250-room, castle-themed hotel, which was the largest among the four hotels with a total of 627 rooms that opened in San Diego County during the first half of 2018, according to Atlas.

Legoland California Resort spokesman Jake Gonzales said the on-site hotel has remained fully booked on a regular basis since its opening in late April. This is the second hotel to open on the grounds of Legoland California, following the 2013 debut of a 250-room, Lego-brick-themed hotel that operators have said also remains filled to capacity during much of the year.

That was the first Legoland hotel built in the U.S. by the park’s U.K.-based owner, Merlin Entertainments Plc, and its success spurred the operator to also add hotels to its Legoland Florida park near Orlando, as well as a new Legoland opening in 2020 in Goshen, NY.