The average market value of Los Angeles-area hotels has soared 50 percent over the last year, a definitive sign that the market slump of the ’90s is over, according to New York-based HVS International, which tracks the nation’s hotel industry for investors.
The average L.A.-area hotel room is now worth $56,575. That value, while dramatically improved, is still below the national average of $69,410 and a mere fraction of the New York average of $275,947.
“Los Angeles was not an appealing place for a long time,” said Bruce Baltin, senior vice president of PKF Consulting, which specializes in the hotel industry. “Since the riots, fires and floods have subsided, it makes L.A. a lot more appealing. The hotel industry is now doing very well in all segments of the market.”
That’s because the Los Angeles Convention Center is attracting more business, and the local economy is drawing more out-of-town executives.
The Los Angeles Convention and Visitors Bureau reported a 37 percent increase in business for 1997 and those conferences mean big dollars for area hotels. In 1997, conference attendees booked 1 million room nights and spent $5.5 billion in Los Angeles.
“Los Angeles is growing as a meetings and visitors destination,” said Carol Martinez, spokeswoman for the bureau. “Los Angeles is very accessible from anywhere in the world. There are always plenty of flights coming into the city. This appeals to visitors.”
While demand for L.A. hotel rooms has increased, the supply of new hotel rooms has been virtually nil. The L.A. area’s total inventory of hotel rooms rose a scant 1 percent during 1997.
As a result, the average room rate in Los Angeles rose 10 percent from 1996 to 1997, according to HVS.
“Basically, Los Angeles continues to have strong demand and a very, very low addition to the supply,” said Andrew Clark, director of research for HVS International.
That means much higher occupancy rates.
Downtown hotels are running at 71 percent occupancy, a 5 percent increase over last year. Average room rates have climbed accordingly, from $96.63 in June 1997 to $107.46 in June 1998, according to PKF Consulting.
Los Angeles is on the verge of a new wave of hotel development. The projects include a 175-room luxury hotel in Santa Monica (set to open later this year), Santa Clarita Valley’s first high-end hotel (opening this summer), and no fewer than five hotel projects in Long Beach.
Other major plans are in the works as well. Majestic Realty Co. expects to move forward by the end of the year on its plan to build a Convention Center hotel and Universal Studios Inc. is looking to develop two new hotels on its Universal City property. The Regent Beverly Wilshire is undergoing a $20 million renovation of a 115-room wing.
Analysts say once the new rooms come onto the market, room and occupancy rates will start to level off a little bit.
“The market will not grow at the same rate it has in the past couple of years with new rooms on the market,” said Baltin. “It (the current market) is an aberration. Over the long term the hotel rates will pretty much parallel inflation.”