Downtown Lifts Up L.A. Hotel Market to Top Tier

Los Angeles has one of the top hotel markets in the country. According to new research from CBRE, average daily rates are expected to grow 3.1% this year over 2017. Los Angeles has always had a healthy hotel market, but the resurgence of Downtown Los Angeles and the growth of the leisure market there has helped to fill a void that has lifted the whole market.

“There has been a radical change in L.A. over the last 10 years. Prior to the downturn in 2005 or 2006, L.A. was a good hotel market but Downtown Los Angeles was fairly weak,” Bruce Baltin, managing director at CBRE, tells GlobeSt.com. “It was largely a commercial and group demand market, and it didn’t get a lot of leisure demand. For that reason, it was always between a 68% and 70% market at its peak. With the development of L.A. LIVE and the redevelopment of residential in downtown, and all of the restaurants and amenities that go a long with it, Downtown Los Angeles has become a very strong submarket, running in the high 70%. That really filled in a hole in Los Angeles.”

While Downtown Los Angeles has helped to raise the market to a top-tier status, other new demand drivers this cycle have also contributed growth, like the Chinese leisure market and the boom of Silicon Beach. As a result, there are no unhealthy hotel submarkets within Los Angeles. “In addition, we have had strong demand from the Chinese submarket, which has fueled the hotel market in the San Gabriel Valley,” Baltin says. “Plus, the development of Silicon Beach and the West L.A. market has filled in the hotel market. We have really no weak submarkets at this point in time, and the market has filled in very nicely. All of the market segments are maturing very nicely.”

The activity has undeniably fueled investment activity—when hotels do come to market, which they rarely do; but the activity has also fueled a surge in development activity. “We have seen a big increase in development,” explains Baltin. “From 1987 to 2015, hotel development in L.A. was about .8% per year, which is lower than the national average. Because of the increase of activity, development is running about 2% per year in 2017 through 2019, and that is really helping boost the inventory.”

There is plenty of demand to justify the new supply of rooms, and hotel activity should continue to grow. The CBRE research anticipates another 2.7% increase in average daily rate next year even as new supply grows 2.8%. “Occupancy is at an all-time high, so we are expecting that to stay relatively flat with strong growth in ADR,” says Baltin. Occupancy is expected to hit 79.9% in 2019, above 79.7% this year, while RevPAR is expected to rise 2.7% this year and 2.6% next year.