Last year wasn’t a walk in the park for California developers and the latest numbers show it.
A biannual survey by brokerage firm Atlas Hospitality Group published this week indicated the hotel supply issues are likely to persevere through 2024.
Last year, only 53 new hotels opened in California, totaling about 6,200 rooms, representing a 10 percent decline from 2022. That number marks the lowest number of rooms open since 2016, according to the firm’s data.
“Not only do we have a very limited supply of new units coming online, and that’s because of customer money, financing, cost of construction have gone way up, and the lenders that were in the hotel construction business have pulled back from it, Atlas Hospitality’s Alan Reay said. “That will restrict development going forward.”
“But what we have seen in the last two years has never, ever happened before in California, and that is we actually have a shrinking supply.”
He noted that what makes California’s hotel market dynamics unique is that in addition to a record low number of new hotels opening up, a lot of hotels are being purchased and converted to affordable housing or housing for the homeless.
The report noted that because of “strong headwinds facing new hotel development” and the fact that many hotels were being converted into affordable housing, hotel values are expected to increase.
“We’re predicting that we will still see fewer new hotels built at least over the next 24 months,” Reay noted, citing high interest rates, fewer hotel lenders, and high cost of construction.
“Once we clear through that, interest rates come back down, we’re going to be left with an imbalance between supply and demand, and I’m going to predict a very, very big appreciation in California hotel values.”
Los Angeles County was the state’s relative bright spot in 2023, with nine new hotels opened and 1,370 new rooms, followed by San Bernardino County with eight hotels and 789 rooms.
Lightstone Group’s Moxy and AC hotel in Downtown L.A., offering 727 rooms, was the biggest hotel to open last year in the state.
In contrast, San Francisco’s figures were particularly stark: No new hotel properties opened in 2023, with the report citing “overall hospitality and local market conditions.”
The post pandemic recovery isn’t quite here yet for the hotel industry, with muted expectations for construction this year.
Los Angeles County tops California’s projections with 225 hotels and 33,372 rooms planned.
San Francisco County has 50 hotels with 5,915 rooms planned, a 5 percent decrease from the year before.
The Waldorf-Astoria San Francisco, once owned by the troubled Chinese developer Oceanwide Holdings, is the only hotel under construction in the city, with an expected 169 rooms. Creditors seized that project, part of the 2.4 million-square-foot Oceanwide Center, in 2021, putting the development’s future in flux.
Correction: An earlier version of this story misstated the number of rooms in the Moxy and AC hotel.