California hotel developers scale back on construction

Higher costs, rising interest rates drop number of projects 12%, report finds

Los Angeles / By Isabella Farr
July 15, 2022 08:31 AM

Hotels in California (iStock)
Hotels in California (iStock)

Developers building hotels in California scaled back during the first half of the year, putting plans on hold as interest rates and construction costs continued to rise.

The number of hotels under construction dropped 12 percent in the first half of this year compared to the same period in 2021, according to a report from brokerage Atlas Hospitality Group.

Rising costs have had a “dampening effect” on new construction across California, the report said. “We predict that the vast majority of hotels in planning will be put on an indefinite hold.”

In the first half of this year, 116 hotels were under construction across Northern and Southern California, compared to 132 during the same period last year.

Los Angeles saw a significant drop in new hotel construction during this period — 23 percent less hotels were being built in the first half of the year, compared to the same period last year. The largest project under construction is still the same as last year’s — the 727-key dual-branded AC and Moxy Hotel in Downtown L.A. That project topped out last year, but has yet to open.

Hotel developers aren’t giving up on the California market altogether — there are currently 1,248 hotels in planning across the state, about the same as in 2021. About 20 percent of those planned hotels are in L.A. County.

In the first half of this year, only five hotels opened across L.A. County, the largest being the 174-room Home2 Suites hotel in Woodland Hills. In the latter half of last year, 13 hotels across the county opened.

San Francisco, where occupancy rates have lagged compared to other areas, was actually the one California market that saw an increase in the number of new hotels. Two hotels opened in the city in the first half of this year. Only one new hotel opened last year — the 195-key CitizenM in Union Square.

It’s unlikely many more hotels will open or start construction in the latter half of the year, given the current interest rate environment. The Federal Reserve is expected to continue raising interest rates to combat a 40-year inflation high.

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