Southern California Hotel Rooms Get Pricier: for Tourists and Investors

Southern California Hotel Rooms Get Pricier: for Tourists and Investors

The Orange County Register

Southern California Hotel Rooms Get Pricier: for Tourists and Investors
By Jonathan Lansner


The Southern California hotel industry’s upswing continues to surprise.

The basic business has enjoyed a remarkable turnabout from the Great Recession that’s attracted fresh money for construction and purchases. The industry’s ongoing surge has made at least one expert second-guess himself.

“It’s been an incredible run-up the past seven years. I thought ’17 would be the start of a lull … and I was wrong,” says hotel analyst Alan Reay at Atlas Hospitality Group. “What I know is that this run-up has got less time to run after six or seven years of it.”

Let’s note that you’re seeing a few more “vacancy” signs at Southern California hotels, much of that due to the wave of hotel construction. And, yes, there’s a curious slowdown in the industry’s hiring pace — remember, that’s still growth mode.

But room rates — and profitability — continue to rise at most Southern California hotels. That keeps hotel operators opening more places for visitors to sleep while buyers eye that flood of visitors — and are still willing to acquire existing hotels.

Good numbers
According to CBRE Hotels’ year-end report, average room rates last year rose in six Southern California regions tracked, while vacancies rates improved in just four — not Los Angeles or Orange counties. One measure of cash flow — “RevPar” — was up everywhere but L.A.

At the neighborhood level, CBRE Hotels found room rates last year up in 34 of 44 local markets tracked while vacancies rates improved in 20 markets.

Biggest price hike? Palmdale/Lancaster up 10 percent to $122 a night. Second, San Bernardino up 6.6 percent to $109. No. 3, La Jolla was up 5.9 percent to $244.

Biggest price cuts? Largest was around the Magic Mountain theme park in Santa Clarita, down 7.3 percent to $141. Next, San Fernando Valley rates fell 3.7 percent to $178; then came “other West L.A.” down 3.3 percent to $318.

Fewest “vacancy” signs? Cheaper rooms in Santa Clarita also gave it Southern California’s best occupancy rate at 87.5 percent. Next was the LAX neighborhood at 85.3 percent; followed by Marina Del Rey at 85.3 percent.

Most vacancies? Look to our seasonal tourist towns. Coachella’s “Down Valley Resorts” had the lowest occupancy at 61.5 percent followed by Palm Springs at 64.1 percent and Huntington Beach at 68.7 percent.

Biggest cash flow improvement? Using the industry’s “RevPar” index, best was Palmdale/Lancaster, up 13.1 percent, thanks to market-leading price hikes. It was followed by Temecula (up 6.9 percent) and Long Beach (up 6.6 percent).

Worst cash flow performance? Price cutting hurt in Santa Clarita, with RevPar down 8.1 percent. Then came Huntington Beach, down 5.8 percent, and Camarillo, off 4.8 percent.

Building boom
Atlas Hospitality reports the five-county region (minus Ventura County) saw 39 hotels open last year, bringing 7,331 more rooms to Southern California. That’s up from 22 new properties with 3,955 rooms in 2016.

And the construction surge won’t stop soon: 75 hotels with 12,237 rooms are under construction in the region. Yes, there are more hotels under construction than the slew that opened in the past two years across the region.

Here’s how Southern California breaks down by county …

Los Angeles County: 23 new hotels with 4,309 rooms vs. eight openings with 1,098 rooms in 2016. Under construction: 32 hotels with 5,327 rooms.

Riverside County: Six new hotels with 1,236 rooms vs. just a single, 32‐room property in 2016. Under construction: 13 hotels with 1,909 rooms.

Orange County: Six new hotels with 960 rooms vs. seven hotels with 1,808 rooms in 2016. Under construction? Eight hotels with 1,657 rooms.

San Diego County: Four new hotels with 826 rooms vs. six hotels with 1,017 rooms in 2016. Under construction? 16 hotels with 2,823.

San Bernardino County: No openings the past two years but six hotels with 611 rooms under construction.

Hiring spree
Southern California hotel owners grew their staffs at the slowest rate since the recession but still added 1,225 workers last year to a record 91,850 jobs.

According to job statistics compiled by the Federal Reserve Bank of St. Louis, the number of workers at lodging facilities in Los Angeles, Orange, Riverside and San Bernardino counties rose by 1.4 percent last year, a sharp drop from 2.8 percent in 2016 and an average 2.9 percent annual pace of hiring between 2011 and 2015.

Since the recession’s end, bosses at hotels, motels and other accommodation businesses in the four-county region added 15,550 workers — doing more than just restoring the 6,225 positions lost in the dark economic days of 2008 through 2010.

Nationwide, it appears hotel owners are playing catch-up. The U.S. industry added 43,050 workers last year to a record 2 million jobs. That 2.2 percent growth topped Southern California’s for the first time since 2011.

It adds up to Southern California — long known for its tourism business — finding lots of competition across the nation. Hoteliers’ hiring in the past quarter-century or so has been brisker elsewhere: Southern California staffs at hotels, motels and other lodges are up 13 percent since 1990; and statewide growth was 15 percent. In the other 49 states? Hotel jobs increased by 24 percent.

Buying binge
Atlas Hospitality reports 180 Southern California hotels were sold in 2017 — seven more deals that 2016 and including 17,051 rooms — up 8 percent in a year.

Those buyers paid up, spending $3.8 billion to acquire Southern California hotels last year, a 22 percent jump above 2016’s deals. The median hotel value, per room, rose 8 percent.

The Atlas report attributes the buying binge to continued investor interest in hotels statewide — especially from the Asia/Pacific region and investors moving out of other commercial real estate niches. Atlas noted that 32 “trophy” hotels, priced $50-million-plus, sold in California in 2017, more than any other state.

Prices and sales volumes rose in most parts of Southern California. Riverside County was a hotspot with a record 31 hotels sold, up nine from 2016 — although per-room values decreased 7 percent. And Orange County deals rose by one to 23 as the median price-per-room sold fell 5 percent. In San Diego County, sales rose by eight to 29 as the median selling prices increased 9 percent.

In Los Angeles County, though, sales fell by eight to 50. Maybe there was some sticker shock: per-room values jump 12 percent to a record high. And deals were also off in San Bernardino County, down one sale to 26, as the per-room median soared by 37 percent to a record high as well.

Can the hotel buyer in Southern California interest continue? Atlas seems to think so, but several risks loom large: rising labor costs and interest rates plus competition from all those new hotels.

“It’s the best seller’s market in 25 years,” analyst Reay says. “And that says a lot.”

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