‘We are forecasting a big decline,” says Atlas Hospitality

By JONATHAN LANSNER | jlansner@scng.com | Orange County Register

PUBLISHED: August 1, 2023 at 11:01 a.m. | UPDATED: August 2, 2023 at 8:32 a.m.

“Crash, correction or chill” looks at economic and real estate trends that offer hints about the depth of housing’s troubles.

Buzz: Building new hotels in California is no longer a popular endeavor, with openings cut nearly in half.

Source: My trusty spreadsheet reviewed Atlas Hospitality Group’s mid-year hotel construction reports dating to 2018.

Topline

First, ponder the words from the industry analysts at Atlas, not the data.

Start with the 2019 executive summary, written in the middle of a tourism boom …

“2018 was a record-breaking year for California hotel development, and as we predicted, 2019 is on pace to eclipse it,” the snapshot enthusiastically stated. “Lenders and developers continue to be very bullish on new California hotels, as they see a very positive long-term outlook for the Golden State. The rapid rise in construction costs has done very little to dampen the supply of new California hotel rooms.”

Now see what Atlas wrote four years later, in mid-2023, in a far more anxious timeframe …

“Through the first six months of 2023, California continued to see a decline in the number of new hotels added as compared to the same period in 2022,” the dour conclusion stated. “We are clearly seeing the impact of the increased cost of new construction and as interest rates and as the scarcity of construction financing take hold, we are forecasting a big decline in new hotels starting construction for at least the next 18 to 24 months.”

Crash? Correction? Chill?

Now let’s look at the numbers.

It is a crash? The pace of openings is kind of bleak with just 20 new hotels debuting statewide in 2023’s first six months. That’s down 31% in a year and off 46% vs. the average pace of 2018-2021.

In Southern California, 10 hotels opened – up 25% in a year but down 46% vs. 2018-2021. In Northern California, 10 opened – down 52% in a year and down 46% vs. 2018-2021.

It looks just as sluggish when eyeballing how many new rooms were available in 2023’s first six months.

Statewide, 2,705 rooms were down 24% in a year and down 42% vs. 2018-2021. Southern California’s 1,210 rooms were up 65% in a year but down 51% vs. 2018-2021. And Northern California’s 1,495 rooms were down 47% in a year and down 33% vs. 2018-2021.

Maybe only a correction? Hotels are being built, but it’s just a thin pipeline of new lodging properties as of mid-year 2023.

California has 122 hotels under construction – up 5% in a year but down 34% vs. 2018-2021. Southern California’s 63 is down 6% in a year and down 38% vs. 2018-2021. Northern California’s 59 is up 20% in a year but down 30% vs. 2018-2021.

That translates to a significant dip in the number of upcoming new rooms.

California’s 16,321 rooms under construction are a 2% increase in a year but that’s 36% below 2018-2021. Southern California’s 9,279 is down 6% in a year and down 37% vs. 2018-2021. Northern California’s 7,042 is up 16% in a year but down 36% vs. 2018-2021.

Or just a chill? Hotel owners may not be betting on adding capacity. But it’s not because rooms aren’t filling up after a rough pandemic rollercoaster.

Look at the overall hotel business, using my trusty spreadsheet’s peek at data from a recent statewide forecast from Visit California.

California hotels are expected to sell 147 million nights of lodging this year – that’s up 7% vs. 2022 and 1% below pre-pandemic 2019. That’s quite a rebound from the 39% tumble taken in locked-down 2020.

That reversal means California hotels should be 71% full this year vs. an occupancy rate of 68% last year. Yes, that’s still below the 75% rate of 2019 but occupancy was slashed to 49% when coronavirus crimped travel in 2020.

And the pandemic era’s surprising tourism revival allowed hotel owners to raise their rates. Look at the price hikes this way – average revenue per room for each occupied night.

Guests will pay $196 a night this year – up 5% vs. 2022 and up 17% vs. 2019. Remember, this room rate measure fell 22% in 2020.

Jonathan Lansner is the business columnist for the Southern California News Group. He can be reached at jlansner@scng.com