California hotel construction declines 17 percent, but state in best position to rebound: Atlas

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staybridge suites irvine
Rendering of the Staybridge Suites in Irvine, the largest hotel to open in the first part of the year.

Hotel construction in California has declined 17 percent in the first half of the year, a decline caused largely because of the COVID-19 pandemic, Atlas Hospitality Group reports.

The change from record-breaking growth last year is reflected in the numbers — hotels under construction declined to 194 in the first six months of 2020 from 234 in the same period last year, as total rooms under construction declined nearly 20% to 26,418.

“We are forecasting that the vast majority of hotel projects in planning will simply not get built,” Atlas Hospitality president Alan Reay said in a new midyear development report. “Developers are already looking at other uses, namely residential.”

CoStar News reported that the financial uncertanity could affect developer appetites to build the new hotels that are in the state’s long-term pipeline, at a time when many current hotels are struggling to reopen and get customers to return, especially in coastal regions including Los AngelesSan Diego and Orange County

Data from travel research firm STR, a CoStar Group company, show that instead of the usual Southern California occupancy rate in the mid-70% to mid-80% range, Orange County’s hotel occupancy for the first seven months of 2020 stood at 46.4%, with Los Angeles and San Diego counties both at 50%.

Most California markets this year have seen concurrent drops in daily room rates and revenue, two key metrics that traditionally incentivize developers and investors to build and buy hotels, or hold back on deals, CoStar reported.

The Atlas report noted  that Los Angeles County led the state in the first half of the year, with 49 hotels and 7,650 total rooms under construction. A 208-room Staybridge Suites hotel in Irvine was the largest hotel to open in the state in the first half of the year.

Reay told CoStar News that California’s hotel demand and development prospects generally remain better than those of most states. One factor is that California has several cities that continue to attract drive-in business as customers from other nearby states opt to take road trips and avoid commercial air flights because of pandemic-related concerns.

“California is much better poised due to the drive-to markets and the fact that a lot of vacationers who would normally have gone to Hawaii are opting for California,” Reay was quoted as saying.

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