LA Hotel Construction Tapers Off As Prices Rise, Owners Look To Cash In

July 15, 2022 | Bianca Barragán, Southern California

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LA Hotel Construction Tapers Off As Prices Rise, Owners Look To Cash In
Downtown Los Angeles (Courtesy of Sterling Davis)

Los Angeles County leads the state in new rooms and projects under construction, but its numbers are still below the 2021 totals.

By midyear 2021, LA County had 38 hotels and 6,020 rooms under construction. At the same time this year, there were 29 hotels and 3,984 rooms under construction, a midyear report from Atlas Hospitality Group found. That’s a big drop from pre-pandemic numbers, too: The midyear report for 2019 found 6,727 rooms under construction in the county.

The slowdown affected all parts of the state, not just LA County. Overall, the number of hotels under construction decreased by 12% year-over-year, dropping from 132 to 116. New hotel rooms under construction dropped by 11%, from 17,962 to 15,958.

The authors of the report attributed the slowdown of rooms under construction to high construction costs and rising interest rates. Though the number of hotels in the planning phase has remained roughly the same since last year, the report anticipates that “the vast majority” of those will be put on hold indefinitely.

The greater LA hotel market has been clawing its way back to 2019 levels but hasn’t gotten there yet. A CBRE hospitality forecast released in June projected that annual revenue per available room, or RevPAR, in the area would hit $132.59 by the year’s end, which would be a 35% increase from 2021’s numbers. CBRE anticipated it would take until 2023 for LA to reach 2019-level RevPAR, or $144.53.

CBRE also expected occupancy in LA to hit 72% this year, well below 2019’s 81% average.

Hotels are hitting the market, and some are expected to fetch top dollar.

In April, the London West Hollywood hotel went up for sale with the expectation that it could sell for as much as $384M.  Meanwhile, Greenland USA put the Hotel Indigo at its Downtown LA Metropolis project on the market yet again as parent company Greenland Holdings has been placed on a default watchlist. The hotel was for sale in 2018 with a $280M price tag, but it did not change hands.

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