California enjoying hotel construction boom — Will it last?

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California is experiencing a hotel construction boom, with more than 18,000 rooms under construction in the state this year, with tens of thousands more in various stages of planning.

Overall, 130 hotels in California, accounting for 18,271 rooms, were under construction as of the end of June, a 17 percent increase over the same period in 2016, according to a mid-year development report prepared by the Orange County hotel brokerage firm, Atlas Hospitality Group.

Los Angeles County has the greatest volume of construction, with 4,585 hotel rooms accounting for roughly one quarter of all hotel rooms being built in the state, according to Atlas..

Atlas CEO Alan Reay said it’s not surprising that development is continuing at a rapid pace, following a years-long drought of new construction.

“There is a combination of things driving this. One is the run-up in the sales prices of existing hotels, which makes it more attractive for hotel owners to build a new hotel as opposed to buying something 30 years old,” Reay told the San Diego Union-Tribune. “Two, it’s the availability of construction financing from lenders, which up until the last two, three years, was almost impossible to find. And last, we’re now into the fifth year of very robust revenue increases in the hotel industry.”

Atlas’ list includes hundreds of hotels in the planning pipeline, but it’s likely that many of those may never break ground or that they are years off from a construction start date.

In San Diego, for example, the list includes hotels proposed for Harbor Island, the redevelopment of Seaport Village, and the Chula Vista bayfront, which may not open for about five years, if they move forward as planned. Also listed is a 500-room addition to the San Diego Hilton Bayfront that is not likely to materialize if the city isn’t able to move forward on an expansion of the city’s convention center, the Union-Tribune reported.

There is a risk of overbuilding, Reay says.

“The general consensus is if you’re under construction you’re still going to be OK because we’re making up for all the lean years between 2009 and 2013,” he said. “But if you’re planning a hotel and you’re not under construction, you really need to be mindful of how many more rooms we can we add to this market.

“We’re starting to see revenue increases start to flatten out and if we have a blip in the economy that could be an issue for people not already out of the ground.”


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