Data Courtesy of CoStar™
Hotels in the Los Angeles market maintain one of the highest occupancy and ADR levels nationally despite declining topline performance. The 12-month average RevPAR through November changed by -1.7%, due to ADR changing by -1.7%, and occupancy changing by 0.1%.
Lured by beaches, Hollywood, and Universal Studios, leisure visitors are the primary travel segment in the market. As such, the slowing leisure hotel demand seen nationally is the primary culprit for declining hotel performance in Los Angeles. ADR has been impacted the most as many leisure consumers have become more price-sensitive and tightened travel budgets or reduced trips. Some of the demand has shifted to other travel options that consumers consider less expensive, such as alternative accommodations, traveling abroad, or cruises.
Inbound international demand has not fully returned to offset the deceleration in domestic leisure demand. Inbound international overnight visitors to Los Angeles generated nearly a quarter of hotel room night demand in 2019 but now represent less than 20%.
Nationally, performance among hotel types was bifurcated, with upper-tier class hotels growing and lower-tier class hotels declining. Many lower-income families feel the strains of higher expenses, lower savings, and increased debt, resulting in limited funds for travel. However, in the Los Angeles market, every hotel class experienced a RevPAR decline between 2% and 3%, year-to-date November.
After 2024, annual hotel performance is expected to grow in all three topline metrics, and ADR will be the primary driver. The upside forecast scenario would be a swifter return of inbound international arrivals and stronger domestic leisure demand. The downside risk would be geopolitical factors delaying inbound travel recovery further or a softening economy that reduces consumer and travel spending.
12 Mo Occupancy
12 Mo ADR
12 Mo RevPAR
12 Mo Supply
12 Mo Demand
In the long term, hotel demand will likely grow as Los Angeles hosts mega events that garner worldwide attention. Los Angeles will host eight games for the 2026 FIFA World Cup, the 2026 NBA All-Star Game, the 2027 Super Bowl, and the 2028 Olympics.
Hotel investors and developers have said they are hesitant to transact in Los Angeles due to uncertainty about labor expenses after a yearlong hotel labor strike, increased transaction taxes, and consistently changing and newly proposed legislation that impacts hotel valuations and operations.
Construction activity has slowed to approximately 2,000 rooms in 16 hotels under construction, resulting in a 1.7% inventory increase through 2027. This compares to 3,700 hotel rooms added in the past three years.
Since the "Mansion Tax" took effect in April 2023, only four hotels with price points above $20 million have traded in the City of Los Angeles, two of which were tax-exempt.
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