HENDERSONVILLE, Tennessee—With 984 hotels and more than 96,000 rooms, Los Angeles is the fifth largest U.S. market based on room supply. The city generated US$2.7 billion in room revenue during the latest 12 months ending August 2009, ranking it No. 4 in the U.S., excluding Las Vegas. Fifty-three percent of that revenue came from luxury, upper-upscale and upscale hotels. Los Angeles is a diverse market, attracting all types of travelers with a broad range of commerce and leisure opportunities.
Like most major U.S. markets, Los Angeles has been hit hard by the economic downturn. August year-to-date occupancy was down 12.7 percent, and average daily rate fell 11.2 percent. This combination drove revenue per available room down 22.4 percent—by far the largest August YTD RevPAR decline tracked by Smith Travel Research.
On a 12-month moving average basis, RevPAR declined 18.4 percent as of August 2009. This compares with declines of 13.6 percent during the 2001-2002 downturn and 9.1 percent in 1991 and 1992.
Weekend performance in Los Angeles (Friday and Saturday nights) has been somewhat better than weekdays. August 2009 year-to-date weekend RevPAR was down 20.3 percent, while weekday RevPAR fell 23.5 percent. ADR declined more than 11 percent on weekdays and weekends, while occupancy slipped 14 percent on weekdays and 10 percent on weekends.
Los Angeles room supply growth averaged negative 0.6 percent from 2004 to 2008, helping occupancy gain an average of 1.1 percent annually during the five-year period. August 2009 year-to-date supply increased 2.2 percent, about 1 percentage point above the long-term annual supply growth average of 1 percent.
Presently, there are 2,400 rooms under construction in the Los Angeles market, two-thirds of which are classified in STR’s upper-upscale or midscale-without-food-and-beverage chain-scale segments. The 2,400 rooms represent about 2.5 percent of existing supply, the majority of which are scheduled for opening during the next 12 to 18 months. Consequently, supply growth will be an issue for the market in the near term—a time when demand growth will likely be tepid.
STR divides the Los Angeles market into nine submarkets. Three submarkets—Hollywood-Beverly Hills, Airport and Long Beach—account for more than 50 percent of the room revenue generated in the market. August year-to-date RevPAR has declined significantly across all submarkets, with Hollywood-Beverly Hills and Santa Monica suffering the largest hits. These also are the two submarkets with the highest August year-to-date ADRs.
Presently, more than 1,000 rooms are under construction in the Los Angeles submarket, while Hollywood-Beverly Hills ranks No. 2 with 358 rooms under construction. That submarket and Santa Monica combined account for roughly 60 percent of the market’s construction activity.
The Los Angeles hotel industry faces a bright future but likely will encounter near-term challenges. If measured as a country, the Los Angeles area would rank as the 15th largest economy in the world, based on nominal GDP growth. International trade, manufacturing, entertainment, aerospace and tourism all are significant drivers of the local economy—and all have been impacted negatively by the global economic slowdown.
Increased room supply growth will present additional challenges, especially during a time when demand will likely be constrained.
Yet the City of Angels will shine again. Look for stabilization in 2010 with more meaningful improvement in 2011.