California hotel construction is booming, but fewer are expected
Hotel construction is booming across California as well as the North Bay, according to a new report from a real estate agency specializing in such properties.
Fifty-one new hotels with 7,168 rooms have opened statewide so far this year, representing a 38% increase over last year, according to Atlas Hospitality Group.
Statewide, while new hotel openings across the state are on the rise starting this month and 132 are under construction, that’s down from the 194 reported last July, according to the house. brokerage based in Irvine.
In Sonoma, Marin, Napa and Solano counties, 83 hotels are in various stages of planning, according to the survey. This includes five projects with 537 rooms under construction in North Bay.
Some of these projects have been authorized for several years, and experts say some may never be completed.
Atlas President Alan X. Reay said there were several factors driving the uptick in future hotel planning activity.
“California hotels are seeing record profits as well as record revenues,” he said. “Additionally, the trend of people buying up existing hotels has pushed prices to the point where it often makes more sense to build a new one. This growth is poised to occur despite rising construction, labor and material costs, as well as higher tariffs on Chinese-made furniture favored by hoteliers. All factors combined, the cost of building a new hotel has increased by 15-20%.
He said low interest rates and the promise of high revenues make building a hotel a better bet for some developers.
“The rate of purchase of existing hotels has accelerated, but more and more developers are investing today for the future. In the past, many builders built new hotels with the intention of selling them right away. Now developers believe in building for the long term because they see California as a great place to live,” Reay said.
Sonoma County has the most hotel construction pending in backlog inventory, including 34 in pre-construction. Napa has 32 hotels in the planning stage and two under construction, and Marin has seven hotels awaiting a construction start date and three under construction. Solano has 10 hotel projects in the square one category.
The five North Bay hotels currently under construction include the AC Hotel in San Rafael, the Hyatt House in Novato; Stanley Ranch Resort and the Cambria Hotel Napa Valley in Napa, and the Four Seasons Resort in Calistoga.
Elsewhere in Northern California, Sacramento County is also in the midst of a hotel construction boom. Some 32 hotels with 4,191 rooms are in the planning stage, a 20% increase in accommodation over last year. Earlier in 2021, the 124-room Hilton Garden Inn at Sacramento Airport (Natomas) opened, along with the 105-room Home2 Suites by Hilton in Roseville.
There are nine additional hotels under construction in the state that will add an additional 1,045 rooms as well as major hotel expansions underway at both Thunder Valley Casino Resort near Lincoln in Placer County near Sacramento and Cache. Creek Casino Resort in Yolo County.
While hotel developers are optimistic as momentum builds to fuel a new wave of hotel construction, Reay says the majority of unfinished hotel projects still registered received permits before 2020.
As fixed costs continue to rise, he warned that only around 15% of the list of proposed hotels could be built if permits expired or the cost of construction, especially wood and steel, l Access to reasonably priced labor and building materials is prohibitive. , as well as the impossibility of obtaining bank financing for the construction.
He said the hotel model was changing, focusing less on hotels with low-margin restaurants and more on the residence-inn concept with kitchenettes, pools, spas and other amenities.
Developers can also reapply for permits to convert quirky concepts into private clubs or Airbnb-style accommodations without a front desk, or they can choose to postpone or abandon their proposed projects if the tolls don’t emerge and wait for economic conditions are improving.
At the same time, Reay said there was a shortage of hotels, with 100 or more hotels in California bought by municipalities and nonprofits converted into low-income housing units or homes for the destitute. -shelter through Project Home Key, a grant program for agencies. to acquire hotels, motels, apartments and other buildings to provide housing for people experiencing or at risk of homelessness.
“Atlas began publishing the bi-annual Hotel Development Survey and a separate Sales Survey 20 years ago using a fully staffed research team to track the market. We’ve never seen a market like this, with the price paid for existing properties selling for as much as $2 million to $2.5 million per room in some cases. The market is truly changing and I could never have predicted the unprecedented volume of activity that is creating a bubble in the hospitality industry today given the surge in prices.