OC Hotel Development Slowdown Continues

OC Hotel Development Slowdown Continues

AUGUST 7, 2023

By: Katie Murar

Hilton Buena Park is scheduled to open at The Source this month

No new hotels opened in Orange County during the first half of the year, as the state continues to experience a post-pandemic drop in hospitality deliveries.

Just one hotel has opened in the county since the start of 2022, the 124-room Element Irvine, according to data from Irvine-based Atlas Hospitality Group.

On a statewide basis, the number of hotels opened in California has dropped more than 60% over the past two years.

The downward trend of hotel openings is expected to continue—and potentially worsen—over the next two years as a result of higher interest rates and construction costs, according to Atlas Hospitality Group President Alan Reay.

“We are definitely going to see a greater decline in hotel openings in the state over the next 18 to 24 months, with most lenders shying away from hotel financing today,” Reay told the Business Journal.

“If you’re not already out of the ground, it is going to be difficult to get started.”

Supply and Demand

Though the market dynamics for building a new hotel are less than ideal amidst financing concerns, demand for hotels in Orange County are on the rise, with tourism figures surpassing pre-pandemic levels last year.

John Wayne Airport reported 11.4 million passengers flew in and out of the airport last year, up from 3.8 million in 2020. Visit Anaheim reported the city had 24.9 million visitors in 2022, up 2.9% from 2019.

Hotels in Orange County during a week in March reported average daily rates surged 51% year-over-year, according to data from STR, with Anaheim reporting the highest rate and revenue per available room increases over 2019 out of the top 25 markets tracked by STR.

A decline in development may further push those metrics higher, as demand outpaces supply.

“The decrease in hotel openings is not a reflection of a slowdown in business, its purely a reflection of the cost of money,” Reay said. “Early last year you could still borrow in the low 4% range, today its higher than 8%.”

Orange County is expected to weather the recessionary storm better than other state counterparts, like the Bay Area, which has seen several hotels undergo foreclosure proceedings.

Reay isn’t aware of any such hotel givebacks in the county.

“Orange County remains a very desirable market to investors,” Reay said.

In the Works

There are five hotels under construction in the county, according to Atlas Hospitality Group.

The largest underway is a timeshare tower at Disneyland Hotel, scheduled to open this fall.

All five hotels are in North Orange County, where land supply is greater, according to Reay.

They include the 91-room La Quinta Inn & Suites La Habra; the 124-room Home2Suites by Hilton Garden Grove Anaheim; the 147-room Residence Inn Brea; the 179-room Hilton Buena Park; and the 350-room Villas at Disneyland Hotel.

OC has 71 hotels with 12,866 rooms in planning.

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