An influx of new hotel rooms coming on the market this year is contributing to a positive long-term outlook for hospitality in California, according to Marcus & Millichap. And that strong outlook is part of the reason some companies are establishing their first West Coast hotels.
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California's annual hotel occupancy is expected to match its peak of the current cycle this year, staying at 75.4%, with LA under the greatest pressure to improve on last year’s numbers, according to Marcus & Millichap’s 2017 U.S. Hospitality Investment Forecast.
Seattle is expected to have average daily rate gains in the mid-2% range compared to a 3.4% gain last year.
About 19,000 rooms are under construction in California. That includes 6,100 rooms in LA, plus 2,500 in Orange County, according to the report.
How do East Coast developers fare when putting down stakes on the opposite coast? There can be challenges, according to Wyndham Hotel Group senior vice president Kevin Brickner.
The cost of labor in California is one concern.
"Our development costs, especially in the Southeast, are suppressed compared to California," Brickner said.
He said his company does more due diligence and takes into account adjustments it needs to make for California markets.
"You just have to be a little extra careful and cautious in the assumptions that you're building, but it's no more difficult to develop there," Brickner said.
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With many of Wyndham's brands in the Southeast, Brickner said it is beneficial for the company to expand to the West Coast.
"Getting that footprint west of the Mississippi is ultra important, so you can start spreading the brand vision and the brand knowledge west of the Mississippi," he said.
Expanding to the West Coast also presents huge opportunities for the Dream Hotel Group, according to its chief development officer David Kuperberg.
"Every new location we open offers yet another way to explore the limits of the brand, while expanding its footprint, but the opening of Dream Hollywood, and later Palm Springs in 2019, is huge, a tipping point as far as consumer awareness and availability of destination options for our core guest," Kuperberg said.
The company is not interested in bringing carbon copies of its New York hotels to the West Coast.
"Our goal is to create engaging environments that are part of the fabric of the place it calls home," Kuperberg said.
In LA, Beauty & Essex, TAO, Avenue and a late night pizza joint that locals can enjoy until 4 a.m. will be among the offerings at the Dream Hotel Hollywood, he said.
Join Brickner, Kuperberg and other hospitality experts at the Bisnow Big West Coast Hospitality Event starting at 8 a.m. on April 21 at the LA Hotel Downtown.
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