Amid strong SoCal performance, L.A. sees uptick in development

The InterContinental Los Angeles Downtown, with about 900 rooms, comprises a large chunk of the pipeline for the city. (hotel exterior skyline)

Although California has been slower to recover from the last downturn than the rest of the United States, it’s well on its way. And because of that, the region, specifically Southern California, has developers wanting a piece of the pie.

“Southern California hasn’t seen new construction since the middle of the last decade,” said Bruce Ford, SVP and director of global business development at Lodging Econometrics. “It’s been a long time of robust operation performance without much increase in supply, so as expected when you run into a development cycle there will be new projects that will come along.”

He said the new development will cause some short-term supply and demand imbalance, but overall the region is strong enough to stay healthy over the long term.

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In 2016, Southern California certainly enjoyed some performance gains, according to STR data. Average daily rate was up 6 percent to $152.35, and revenue per available room increased 7.3 percent to $115.92. Occupancy, meanwhile, saw a gain of 1.2 percent to 76.1 percent. The SoCal region comprises California’s 10 southernmost counties: Imperial, Los Angeles, Orange, Riverside, San Bernardino, San Diego, Santa Barbara, Ventura, Kern and San Luis Obispo.

Ford said there are two tracts in the region of note that developers have their eyes on: Hollywood/Beverly Hills and the Los Angeles central business district. In Hollywood/Beverly Hills, there are eight hotels with 1,553 rooms under construction with 13,000 rooms currently open, according to LE data.

“That’s fairly significant if you do that math,” Ford said. “If all of those rooms open, it’s more than a 10-percent increase in supply. But it’s spread out over time, so it’s not overwhelming.”

In the Los Angeles CBD, there are 12,000 rooms open and nine hotels with 2,809 rooms under construction, Ford said.

“Los Angeles this year is scheduled to have 1,386 of those 2,809 rooms open in 2017,” he said. “That’s a pretty big bump.”

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Performance for the Los Angeles/Long Beach market has been picking up slightly, according to STR data. As of January, RevPAR has increased 1.1 percent to $124.14. ADR has seen an increase of 1.9 percent to $165.39. Occupancy was down slightly by 0.8 percent to 75.1 percent.

Oversupply Concerns?

“When you talk about oversupply, you have to ask if it was undersupplied first,” Ford said.

Looking at the supply on tap for Los Angeles, he said the majority of rooms are due to just a few hotels. For example, the InterContinental Los Angeles Downtown, with about 900 rooms, will comprise a large chunk of the pipeline. The hotel will be 73 stories and is set to be the tallest building downtown. Additionally, a 300-room Hotel Indigo is in the works for downtown.

“It will be a shock initially, but likely long-term demand trends say that it’s a viable market or tract,” Ford said.

He said Los Angeles has enough continued demand to warrant such development, including the Staples Center adjacent to the LA Live development.

“LA Live was a stamp of success,” Ford said. “As a result, you’re seeing another wave of new development around it.”

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Riverside on the Map

Los Angles isn’t the only market to shine in the region. Ford said the Riverside/San Bernardino area is one to keep a pulse on.

The market has 14 projects with 2,155 rooms under construction, he said. Overall, there are 67 hotels with about 8,000 rooms in the total pipeline.

“Those highways heading out toward Palm Springs … are seeing some spike in upscale and upper midscale,” Ford said.

According to STR, Riverside/San Bernardino has enjoyed steady performance growth. Over the past five years, the market has only seen increases in each of the three key performance metrics when looking at year-end data. As of January, the market experienced occupancy growth of 1.2 percent to 65 percent. ADR was up 3.9 percent to $114.09, and RevPAR was up 5.2 percent to $74.19.

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