The pace of new hotel openings in California is going down.
After the state saw a record number of hotel openings and construction, the coronavirus-catalyzed economic downturn has slowed new hotel openings and developments in Orange County and throughout California through the first half of this year, according to a new report by Irvine-based Atlas Hospitality Group.
Last year, California welcomed the opening of 92 hotels totaling 11,795 rooms, the most in the state since 2017. This year, 35 hotels totaling 3,500 rooms have opened in the first half of the year, but the downturn caused by the coronavirus has many hotel operators delaying, deferring, or outright abandoning their hotel projects, Atlas Hospitality President Alan Reay said.
Hotel sales are also down, Reay said, and the number of hotels under construction has decreased 17 percent year-over-year from 234 to 194.
“We are forecasting that the vast majority of hotel projects in planning will simply not get built,” the report states. “Developers are already looking at other uses, namely residential. For those developers that still want to move forward with new hotel development, they are going to find it virtually impossible to find lenders willing to provide construction financing.”
The Atlas Hospitality mid-year report released Tuesday highlights the impact the coronavirus has had on the state’s hotel industry and the havoc it has created for hoteliers and their prospective projects. The hotel report is an economic indicator of the performance of tourism and visitorship in certain markets.
With domestic and international travel restrictions and many of Southern California’s attractions such as Disneyland, convention centers, and other tourism spots closed to prevent the spread of the coronavirus, several hotels have either ceased operations or are operating in a limited capacity. Some are waiting to open their doors until the market turns.
In Orange County, a new four diamond J.W. Marriott was slated to open next to Disneyland in March, but when the coronavirus shut down the economy, the owners delayed its opening until this month.
So far this year, Orange County has opened four hotels totaling 524 rooms. Another 15 hotels totaling 2,888 rooms are under construction, and 68 hotels totaling nearly 12,000 rooms are in various planning stages, according to the report.
Los Angeles opened one hotel this year with another 49 in development. The county has 286 hotels totaling 42,484 rooms in planning, the most in the state, according to the report.
San Francisco saw zero hotel openings, but five properties totaling 858 rooms are under construction. Santa Clara County had two hotels openings and has 17 hotels underway.
But Reay believes hotels currently in construction or in planning are either going to get canceled or will enter bankruptcy.
As of July 30, there were 23 hotels with commercial mortgage-backed securities debt in Los Angeles and Orange Counties that were delinquent on their loan payments, he said. He expects that number to grow as the coronavirus continues.
“As most of the conventional lenders and SBA have agreed to defer loan payments, we are still not seeing a lot of foreclosures on hotels,” Reay said. “We are seeing a lot of delinquencies on hotel loan payments on the CMBS side and foreclosures/bankruptcies on hotels under construction, in particular the Coachella Valley.”
For consumers, the fewer number of hotel openings in the future could mean higher hotel rate prices and occupancy.
“The less new supply coming in to the market, the higher the rate and occupancies should be for the existing supply,” he said.