California Hotels Achieve High Occupancy and ADR Levels, but Further From Previous Peak Levels Compared to Other States

    By Emmy Hise, Senior Director of Hospitality Analytics, CoStar Group

    California hotels achieved one of the highest occupancy and Average Daily Rate (ADR) year to date (YTD) through September. However, the state was not immune to the travel normalization trend that was seen nationally. Some of the California leisure-oriented destinations showed limited growth or even declines, while the city centers experienced robust year-over-year growth.

    While California hotels are one of the top-performing states on an absolute basis, it is one of the least recovered states nationally. When comparing 2023 to 2019, California hotel occupancy is the least recovered in the nation, while ADR and Revenue per Available Room (RevPAR) rank within the bottom five of least recovered.

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    California is the third largest state by area and the most populous state in the nation, so naturally, California also has the most hotels and hotel rooms in the United States. Even with abundant hotel supply, YTD California has the sixth highest occupancy and fifth highest ADR, at 68% and $93, respectively, in the nation.

    On a trailing twelve-month basis through September, only 16 markets in the US achieved occupancy above 70%. California had three: San Diego, Los Angeles, and Orange County. Only 12 markets had ADR’s above $200; three are in California: California Central Coast, San Francisco, San Diego, and Orange County.

    Similar to national trends, California hotels experienced strong year-over-year growth during the first quarter this year, but growth slowed after that and, in some months, showed minor declines. YTD through September occupancy is flat compared to last year, but the state experienced year-over-year monthly occupancy declines since April. ADR is 3% above last year, lower than the inflation rate, and only experienced minor monthly declines in June and July.

    The shift in performance is primarily due to leisure travel reverting to normal patterns. The domestic “Revenge Travel” phase is over, with travelers becoming more mindful of their budgets and, therefore, may slow their vacation spending. National savings rates are lower, and credit card debt and living expenses are higher. Still, most travelers will likely keep travel in their budgets but may not travel as frequently or as lavishly.
    This shift has impacted most leisure destinations, causing minimal growth or declines during the summer months this year. California offers visitors vast vacation opportunities, with beaches, wineries, Hollywood, Disneyland, Legoland, Universal Studios, plentiful Michelin-rated dining options, and city adventures. Of the 12 STR-defined California markets, six experienced occupancy decline in the past four months, while three experienced ADR declines.

    Another headwind to leisure destinations was that many Americans traveled internationally this summer, after spending the last three years traveling domestically. However, the United States did not benefit from a comparable influx of inbound international travel. Outbound international travel exceeded 2019 levels through August, while international inbound travel counts are still behind.

    Diverse Markets Show Varied Results

    Due to the state’s vast size, there was diverse hotel performance among the different destinations. San Jose and San Franciso remain the least recovered destinations in the nation despite achieving the highest year-over-year growth among all topline metrics in the state this year. Oakland, San Jose, and San Francisco are the only destinations in the state where ADR has not exceeded 2019 levels. The lack of workers in downtown offices and a muted convention calendar, coupled with a lack of international tourists, are hampering the recovery. The California Central Coast, which spans from Monterey to Thousand Oaks, experienced the most significant ADR gains over 2019 of nearly $50, closely followed by Orange County and San Diego. These ADR gains point to the ability of the high-end resorts in the area to drive luxury demand and monetize it.

    Looking forward, STR and Tourism Economics project a mild recession for the US at the end of the year through the first quarter of next year, likely impacting California. However, the impact of this slowdown on lodging demand could be limited as group and business travel activity rebuilds, international visitors return, and leisure travelers hopefully find room in household budgets to prioritize travel. All the California markets are forecast for RevPAR and ADR growth in 2024. Only the Inland Empire and California North Central areas are forecast for a minor occupancy decline, but they are also expected to have the highest supply percentage increase in the state next year. San Francisco, Los Angeles, San Jose, and Oakland are projected to have the highest RevPAR growth next year, which is mainly driven by rate growth.

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