California Hotel Openings Drop Year Over Year - CoStar

Excerpt from CoStar

New hotel openings in California shot up in 2021 as projects delayed by the pandemic came to fruition, but then dropped just as sharply in 2022 amid challenging development conditions.

Atlas Hospitality Group’s California Development Survey 2022 Year-End reports that 56 new hotels opened last year with 6,847 rooms, a 43% decline in the number of rooms opened compared to 2021. The 305-key Conrad Hotel Los Angeles was the largest hotel to open in the state last year, while San Bernardino County led with the most hotels opened at eight, and Santa Clara County had the most hotel rooms with 1,155.

As of the end of the year, 115 hotels with 15,497 rooms are under construction. Another 1,249 hotels with 164,951 rooms are in the planning stage. Los Angeles County leads California with 22 hotels and 2,888 rooms under construction.

Alan Reay, president of Atlas Hospitality, said the year-over-year comparison is a bit misleading, and the 2022 figures are fairly typical. Several hotel developers with projects nearing completion in 2020 slowed down construction and delayed openings to 2021 when they hoped conditions would be more favorable, he said.

“Had that not happened, I think we wouldn’t have seen such a big decline,” he said. “What we’re seeing in 2022 is sort of more in line with what we’re used to in a ‘normal year’ in California.”

Ups and Downs

The cost of construction, or at least the cost of materials, has come down compared to previous years, Reay said. However, the higher cost of loans due to higher interest rates has offset that.

Hotels that are opening now are coming into a completely different world than when they first started construction, he said.

While supply-chain disruption also has eased somewhat, the average hotel development project takes about 14 to 18 months to complete after getting city approval and depending on several factors, including market, size and product type.

“What we’re looking at on a going-forward basis is that unless you’re already under construction, it’s going to be very, very difficult,” he said. “Not only because of the cost, but the availability of financing and, if you can get it, how expensive it is.”

Building of other types of real estate, particularly residential, has slowed even more, which means contractor bids on hotel projects will be much more competitive, Reay said.

However, developers still must contend with the higher cost of debt, a tighter labor market and other general economic concerns.

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