Data Courtesy of CoStar™
The Los Angeles market experienced year-over-year growth in occupancy, ADR, and RevPAR year to November. The 12-month average ADR and RevPAR are near historical peaks of $198 and $142, respectively. Also, hotels in the Los Angeles market maintain one of the highest occupancy and ADR levels nationally. Lured by beaches, Hollywood, and Universal Studios, leisure visitors remain the primary travel segment to the market. However, similar to national trends, the summer hotel performance was soft, as "revenge travel" ended and leisure visitors reverted to standard travel patterns. Since summer ended, year-over-year performance has varied, as the market becomes more reliant on business- generated travel through conferences, conventions, and corporate travel.
The 12-month average occupancy through November was 71.7% making Los Angeles among the limited number of U.S. markets achieving 12-month average occupancy levels above 70%. Still, the Los Angeles market occupancy remains below 2019, when occupancy was almost 80%, as the market is still awaiting the full return of international visitors, conferences and conventions, and corporate travel. The 12-month average hotel occupancy is not expected to fully recover until 2026 due to the addition of new hotel inventory.
All topline metrics are projected to grow annually through 2027. Long-term, hotel demand in the area will show greater strength, as Los Angeles is hosting three mega events that garner worldwide attention. Los Angeles was selected as a host city for the 2026 FIFA World Cup, the 2027 Super Bowl, and the 2028 Olympics.
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While hotel topline performance is favorable, room labor expense has steadily increased in the past few years, potentially impacting profitability. Hotel worker protection ordinances have taken effect in Los Angeles, Santa Monica, Glendale, West Hollywood, and Long Beach, increasing hourly pay and limiting daily square footage cleaning amounts. Also, union contracts expired in June 2023, resulting in the largest hotel strike in U.S. history. More hotels are reaching agreements with the union, and based on union requests, higher hourly wages and better benefits are expected.
There are approximately 1,900 rooms in 15 hotels under construction, resulting in a 1.6% inventory increase over the next few years. The addition of new inventory comes at the heels of 5,700 hotel rooms being added in the past three years.
There was a robust hotel investment appetite in Los Angeles in early 2023 but stalled afterward. Since the "Mansion Tax" took effect in April, only three hotels have traded in the Los Angeles market with price points above $20 million, two of which were tax exempt. Most of the hotels that traded in 2023 were Economy Class hotels, part of a large national portfolio transaction, or slated for conversion.
Higher interest rates, an expected economic softening, hotel union labor strikes, and legislation impacting Los Angeles hotel values have dampened high-priced transaction activity. Transaction activity could increase in the next two years, as nearly 50 of the 80 hotel CMBS loans in the market will mature.
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