In the last five years, Los Angeles hotel developers have boosted the number of hotel rooms in the city by more than 7%. But demand keeps rising as visitors to the L.A. area last year reached 50 million, up 18% from 2013.
While several dozen new hotels are in the works, the projects skew to the higher end — a consequence of the steep cost of land and development in Southern California.
Industry researchers and real estate groups say that has left an opening for short-term rental services like Airbnb Inc.
Rather than cannibalizing the hotel market — as some observers say Uber Technologies Inc. and Lyft Inc. have done with taxis — Airbnb’s thousands of L.A.-area homes are providing relief for more budget-conscious travelers.
Airbnb is “a huge disruptor in the marketplace,” said Arjun Shokeen, partner of
El Segundo-based Welcome Group Inc., a hotel property group. But Shokeen said the impact on his business has been minimal since he focuses on providing luxury amenities Airbnb can’t — such as event space, a rooftop bar and breakfast.
In L.A. the average nightly hotel rate last year was $180.17, well above the national average of $129.83 despite the influx of new rooms in the local market. Occupancy at L.A. hotels was 79.6%, above the national average of 66.2%.
Nightly rates on home-rental services are often lower than at L.A.’s many luxury hotels, and Airbnb properties are more attractive to long-term visitors seeking kitchens and other home-like amenities.
“Our guests tend to stay a lot longer than traditional hotel guests,” said Connie Llanos, Airbnb’s deputy policy manager for Southern California. “Usually that stay is about 4 nights on average, which is about double the industry standard,” she said.
Airbnb’s rise in L.A. hasn’t been without pain. Residents have argued that properties used exclusively for short-term rentals have driven up rents, disrupted neighborhoods, and worsened traffic and parking.
Last year, L.A. passed new rules that will regulate services like Airbnb. The law allows homeowners to rent out a primary residence for short stays but restricts short-term rentals on secondary or investment properties. The ordinance takes effect July 1.
Airbnb’s niche in the market
Nick Rimedio, general manager at the La Peer Hotel in West Hollywood and chairman of the West Hollywood Chamber of Commerce, said between hotels and short-term rentals, there are a wide range of options for travelers. Short-term rentals cater to “a different kind of guest or a guest with a different kind of need,” he said.
At times when hotel rates would normally rise — say, during a major event — Airbnb absorbs some of that demand.
“The Airbnb effect is more pronounced for longer stays than for your typical corporate guy who pops in Tuesday, Wednesday pops out,” said James Stockdale of Jones Lang LaSalle Inc. “It’s more a function on the leisure side of things and more a factor for the (longer-term) customer.”
Stockdale added, “Airbnb to hotels is definitely not what Uber and Lyft are to taxis.”
Alan Reay, president of Atlas Hospitality Group, said if not for Airbnb, hotel rates might be even higher than they are now.
Bruce Baltin, a managing director at CBRE Hotels Consulting, agreed. “Airbnb does not have a huge impact on occupancy,” he said. “What it’s changed is average rate.”
Hotel market booms
Most of the hotels under construction nationally are luxury properties that charge higher nightly rates, according to a recent JLL report. Only 2.5% of hotels being developed nationally were budget hotels, the report found.
That’s largely driven by the high price of development, especially in L.A., experts said.
“The cost of land and the cost of construction — you are not going to see anyone building budget hotels,” Reay, of Atlas, said. Airbnb “fills in that gap” in price points right now, he added.
As new hotel rooms come online, experts say the market will adjust.
“The construction pipeline is slowing down a little bit,” said CBRE’s Baltin. “We added a lot in 2017 and 2018. The hotel industry is very strong right now in terms of occupancy and average room rate.”
L.A. has “seemingly boundless new supply, particularly downtown, and I think that’s okay,” said Bob Rauch, chief executive of San Diego-based Rar Hospitality Inc., who manages the Wave and Crimson hotels in Manhattan Beach. The company is also building a Tru by Hilton in Inglewood.
“L.A. is one of several destinations in the U.S. that has shown a significant improvement in its ability to perform,” Rauch said. “There are no places in L.A. that are not booming right now.”
Said Stockdale: “As long as the economy continues to grow, the hotel industry should be fine.”
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