COVID-19 Brings Hotel Construction Industry in California to Grinding Halt in 2020
At the beginning of the calendar year 2020, it was impossible for us to believe that standing in the 21st century mankind would be subject to a deadly virus that would wreak havoc and destroy lives as we know it today. Even as we approach the last quarter of the year, there is no end in sight to the worst pandemic that humankind has witnessed in modern times. With restrictions imposed on movement, businesses have taken a toll the world over, some more than the other.
One of the worst affected industries in the travel and tourism industry that has devastated the hotel industry in California. Historically, California has driven the hotel industry because of tourist hotspots such as Disneyland Resort in Orange County, media production in Los Angeles and business travel driven by the tech industry in Silicon Valley. Not only has there been a tsunami of hotel closures, hotel construction has taken a major hit, registering a 17% decline in hotel construction.
This double-digit decline comes after record-year for the state in the year 2019, when the above-mentioned industries were operating in full swing and looking forward to a fruitful year ahead, till the corona virus pandemic brought businesses to a grinding halt. The numbers cut out a dreary picture for the hotel construction industry in California.
For the first six months of 2020, hotels under construction dropped by 17.1% to 194 from 234 in the corresponding period of the previous year. The number of new rooms under construction registered a drop of nearly 20% from to 32,424 to 26,418, according to hotel brokerage and research firm, Atlas Hospitality Group. While 35 new hotels opened in this time period, down just one as compared to the same time frame in 2019, they did so with 22.5% lesser rooms that is a statement on the dwindling demand.
Some bright spots amid the doom
Some of the notable new openings in 2020 in Southern California are as follows. Los Angeles County, that leads the hotel industry in Southern California with 49 hotels and 7,650 rooms in construction, witnessed only one hotel opening in the first half of 2020, the 24-room Prospect Hotel. San Diego County and Orange County were at par with each county witnessing the opening of four new hotels each.
San Diego County added a total of four hotels with the largest Homewood Suites in Carlsbad with 142 rooms. The construction of the 226-room Destination Hotel Resort in Oceanside, the largest hotel to be constructed in 2020 has come to a halt as a result of the pandemic. In Orange County, four hotels with 524 rooms witnessed opening in the first half of 2020.
The largest of the four was the 208-room Staybridge Inn & Suites Irvine. 15 hotels in Orange County remain under construction, with the total of 2,888 rooms. The largest of these is the 613 room Westin Anaheim Resort, that was also in the construction phase but faces uncertainty in the future.
Northern California witnessed a fate that was worse than Southern California. In the first half of 2020, no new hotels were opened in San Francisco County of Northern California. Five hotels with 858 rooms are under construction in San Francisco. The Luma Hotel in Mission Bay in San Francisco remains under construction.
Santa Clara County and Sacramento County in Northern California had a shade of better luck as compared to San Francisco as each saw two hotels open in the first half of 2020 with 249 and 227 rooms respectively. Another area in Northern California, the Fresno County had three new hotels open with a total of 325 rooms.
Slowdown to continue with no end in sight
Alan Reay, President, Atlas Hospitality Group in a mid-year development report on the hotel construction industry forecasts that, developers are now focusing on other sources such as residential as a vast majority of hotel projects that were in the pipeline for the year have been shelved.
Another travel research firm STR records in a similar report that compared to the 70% to mid-80% occupancy rate that has been a norm in Southern California hotels, occupancy rates have been halved. For instance, for the first seven months of 2020, Orange County’s hotel occupancy rates dropped to 46.4%, with San Diego and Los Angeles counties both at 50%.
The STR research report further notes that the two key metrics namely revenues and daily room rates in existing hotels that are watched closely by investors to cut deals and developers to announce new projects have both taken a hit in 2020, as demand has dropped steadily during the year. As top of the line hotels are currently struggling to get customers to return especially in the costal regions, developer appetite for new hotel construction has steadily waned.
If that was not all, the closure of high end luxury hotels such as the Luxe Rodeo Drive hotel in Los Angeles and the Hilton Times Square hotel in New York City are adding to the gloom and doom of the scenario and is indicative of the financial burden and a sharp uptick in delinquencies. With no clear indication of a remedy or an end in sight, it is clear that the impact of this deadly pandemic will be felt by hotel construction industry in California for a long time going ahead.
