California Hotel Openings Drop in First Half of Year - CoStar

Excerpt from CoStar

The midyear 2023 California hotel development survey from Atlas Hospitality Group indicates a slower pace of new openings, which is expected to continue as fewer hotel projects enter the construction phase.

Fewer hotels opened in California in the first half of 2023 compared to last year, according to a new survey.

Atlas Hospitality Group’s California Hotel Development Survey 2023 Mid-Year shows that 20 hotels opened in the state during the first six months of the year, a 31% year-over-year drop. The number of rooms opened was 3,561, also a 24% decline.

The number of hotels under construction increased by 5.2% to 122 while the number of hotel rooms under construction remained relatively flat at 16,321 compared to 15,958 last year. Atlas forecasts a significant decline in the number of new hotels entering the construction phase over the next 18 to 24 months.

The figure that jumped out for Atlas President Alan Reay was the 60% decline in hotel openings compared to the first six months of 2021.

“But I think it’s no surprise to anyone,” he said. “Unless [your hotel was] actually under construction, the number of those projects is definitely drying up now, and primarily because of what’s going on in the marketplace — [rising] interest rates and most lenders today are completely shying away from any new hotel construction loans.”

Not only is new hotel supply slowing, it’s decreasing in California, primarily due to projects converting older hotels to other uses, mostly housing, Reay said. The state-funded Project Homekey is a major driver of this change. An industrial company last year acquired a hotel in Orange County to knock down for industrial conversion, which Reay said was a first.

“All of these things would lead me to believe that for the long term, California is going to be a good place for people to invest — at the right numbers,” he said.

Reay said for the next 24 to 36 months, he expects little competition for new hotel products entering the marketplace. An owner that can generate a premium on average daily rate and revenue per available room could justify a new-build project.

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