Los Angeles Commercial Hospitality Market Report as of October 1, 2023

[Manuel Angeles]

Greetings,

Here is an update on the current Commercial Hospitality Market in Los Angeles County, CA:

The Los Angeles hospitality market experienced year-over-year growth in occupancy, ADR, and RevPAR year-to-date through August. Also, hotels in the Los Angeles market maintain one of the highest occupancy and ADR levels nationally. Lured by beaches, Hollywood, and Universal Studios, leisure visitors remain the primary travel segment to the market. However, similar to national trends, the summer hotel performance was soft as "revenge travel" ended and leisure visitors reverted back to normal travel patterns.

Still, Los Angeles is among the few U.S. markets achieving 12-month average occupancy levels above 70% but remains below 2019, when occupancy was almost 80%. The 12-month average hotel occupancy is not expected to fully recover until 2026 due to the new hotel inventory additions and the delayed return of international visitors.

All topline metrics are projected to grow in the next five years. However, the growth rate is forecast to moderate due to the anticipated mild recession later this year. Long-term, hotel demand in the area will show greater strength, as Los Angeles is hosting two mega events that garner worldwide attention, the 2028 Olympics and the 2026 FIFA World Cup (as one of the host cities).

While hotel topline performance is favorable, room labor expense has been steadily increasing since the Los Angeles Hotel Worker Protection Ordinance took effect in August 2022. Some of the ordinance requirements include square footage cleaning limits for housekeepers, mandatory daily cleaning with no incentives to guests for passing on daily cleaning, and minimum wage increases for some hotels. Similar laws were passed in Santa Monica, Glendale, West Hollywood, and Long Beach. In February, the first class-action lawsuit was filed to enforce hotel workload protections against the Hyatt Long Beach. Additionally, union contracts expired on June 30th, resulting in 15,000 hotel workers in Los Angeles and Orange County going on strike, which represents the largest hotel strike in U.S. history. Unite Here Local 11 is asking for an immediate $5 increase to hourly wages and a $3 increase each year for the next three years. Other requests include affordable family health care, pension contribution increases, and increased staffing to have hours back to pre-pandemic levels.

There are approximately 2,300 rooms in 17 hotels under construction, resulting in a 2.0% inventory increase over the next few years. The addition of new inventory comes at the heels of 5,500 hotel rooms being added in the past three years.

The robust hotel investment appetite in Los Angeles continued early this year but stalled thereafter. In February, the closed 139-room Standard Hollywood Hotel was purchased by hospitality moguls Ed Scheetz and Ian Schrager for $112.5 million, or $803,353/key. The other hotels that traded this year were primarily Economy Class hotels, and sales prices did not exceed $20 million. Increasing interest rates, an expected mild recession, and new legislation impacting Los Angeles hotel values have dampened high-priced transaction activity, excluding the Standard.

Here are several graphs illustrating the current commercial industrial market in Los Angeles county:

Access the full Los Angeles county commercial hospitality market report here: https://d2saw6je89goi1.cloudfront.net/uploads/digital_asset/file/1170823/Los_Angeles_-_CA-Hospitality-Capital_Market-2023-10-02_a_compressed.pdf

Data includes: Sale price per key distribution, cap rate distribution, cumulative sales volume by year, months to sale, recent significant sales, occupancy rates, ADR, RevPAR, construction deliveries/demolitions, economy, job growth. population growth, and Los Angeles county sub-market activity.