HM on Location: LE analyzes California's hotel scene at CLIC

COSTA MESA, Calif. — An estimated 250 people gathered at The Westin South Coast Plaza for the annual California Lodging Investment Conference, discussing trends and issues affecting the industry as a whole and the state in particular.

The day began with an update from Lodging Econometrics about the overall state of investment and development within the U.S. hospitality industry. Bruce Ford, SVP at Lodging Econometrics, said that renovations and conversions “are increasing at dramatic rates” across the country. Moreover, he added, this type of investment in existing portfolios is “probably the best return you can get today in the marketplace for your cash.” When owners list their hotels for sale, he said, being able to tout a recent renovation “is the best marketing you can do.”  

Pressure from brands to complete deferred renovations is on the rise across the country, Ford said, and this is likely to spread worldwide over the next two to three years. He also noted that the cost to buy a hotel right now is less than the cost to build one from scratch, with prices roughly 20 percent below replacement costs, on average.

While borrowing for hotel development today may be “a little bit challenged,” Ford noted that “many savvy owners did what they could do when the rates were lower.” Similarly, those “savvy” investors are not seeing as many debt maturity issues as others might be.

If business and meetings travel comes back at the rate that Lodging Econometrics expects, Ford said that 2023 should be the year in which recovery is finally “fully underway.” 

By the Numbers

For California as a whole, Lodging Econometrics reported 14,393 rooms under construction, 33,489 rooms slated to start construction in the next 12 months and 36,950 rooms in the early planning stage as of the end of 2022. “There [are] only 650,000 rooms in the [United States] new-construction pipeline,” Ford said. “Eighty thousand of them are in California. That should tell you the economic impact that the state has on the hotel business.” 

The state reported 11,971 rooms that were in the process of reflagging and 12,652 rooms that were renovating. In total, 25,743 rooms changed hands in California last year. 

Key Markets

Los Angeles

At the end of 2022, the City of Angels had 2,950 rooms under construction, 6,436 slated to start within the next 12 months and 10,033 in the early planning stage. Ford noted some projects scheduled to kick off at the beginning of the pandemic still have not yet begun, while other projects paused and have remained shuttered. Those projects, he added, would reflect what he called a “postponed pipeline” of a further 3,000 guestrooms not included in the pipeline.

“But there are some owners who believe in the recovery in Los Angeles and believe that the Staples Center and the Los Angeles Convention Center and the surrounding leisure markets will continue to rise,” Ford said, noting a lot of renovation activity. Lodging Econometrics estimates 935 rooms are converting from one brand to another and 1,805 have announced renovations. A total of 3,641 guestrooms changed hands in Los Angeles last year, and Ford emphasized that the city not only has the most hotels in the state but the second largest pipeline in the country behind Dallas.

San Diego

Ford called San Diego “a great example of a convention market that's ready to get going again,” with a “robust” number of renovations and a lot of transactions and conversions. The city has 2,170 rooms under construction, with 5,773 rooms scheduled to start in the next 12 months and 1,802 in the early planning stage. Similarly, 2,245 rooms were reflagging and 2,481 rooms were slated for renovations. In total, 3,625 rooms were part of hotel transactions in 2022. “When the lending light comes on, we will see more new construction projects begin in San Diego, and I expect that San Diego will continue to maintain its place as a top 10 development market in the United States,” Ford said.

Sacramento

The state’s capital had 1,244 rooms under construction, 2,036 rooms set to begin construction in the next 12 months and 2,803 rooms in the early planning stages. As of the end of the year, 335 rooms were changing flags while 1,114 rooms were renovating. The city reported 1,219 rooms changing hands as part of hotel transactions last year. 

San Francisco

San Francisco reported 760 rooms under construction, with 1,678 scheduled to start in the next 12 months and 2,392 in the early planning stage; 661 rooms were changing brands while 1,405 rooms were in the renovation process. The city reported 1,795 rooms being sold in 2022. 

Lodging Econometrics California Hotel Openings 2023-2025