Real estate in California is expensive compared to other parts of the country. So, can it still be a good hospitality investment? At Luxury Hotel Advisors, we think so!
High Demand for Accommodations
California continues to be one of the most popular tourist destinations in the country attracting visitors from all over the U.S. and the world. The region consistently has a high demand for accommodations due to the sheer number of leisure options and the business activity associated with the entertainment industry and tech. In addition, Americans enjoy visiting California which is ranked #1 for interstate tourism according to Business Insider.
No other state has what California offers in terms of diversity of activities – the options are practically endless so we think the visitors will keep coming.
California is Resilient
Our state is remarkably resilient and the recovery after Covid is just one more example with revenue associated with travel exceeding 2019 numbers in many locations. We have the 5th largest economy in the world with Los Angeles being the primary driver. According to the Los Angeles Economic Development Corporation, the Los Angeles area alone is on track to see 50 million visitors in 2023 and they will spend about $18 billion during their visit.
Visit California noted that total visitor travel spending is expected to reach $154 billion in 2023 which is 107% of 2019 revenue. While international travel is still below 2019 levels, domestic travel related spending is expected to be 113% of 2019 levels.
High Occupancy Rates and ADR
The occupancy rates for hotels in California are typically higher than the national average due to the mild climate and plethora of activities driving demand. With its beautiful beaches, the entertainment industry, skiing, theme parks, shopping and sports and entertainment venues, California has more to offer visitors than any other state in the country.
Luxury hotels in California enjoy average rates that are higher than the national average. When people visit, they want the best experience they can afford and for luxury travelers that can mean the sky is the limit with Presidential Suites and private jets! The right location targeting the right market can certainly be a smart hospitality investment.
To encourage economic development, California has Opportunity Zones that offer some notable tax incentives to investors in businesses and real estate in specific areas. There are hundreds of Opportunity Zones in California and while the majority are for housing, there are a few with hospitality investment components. Investors in these areas could be eligible for tax incentives like deferral or reduction of capital gains taxes and potential tax-free appreciation of their investment.
Long-Term Growth Potential
California has seen steady growth in tourism since the 2008 recession and reached new heights in 2019 when tourism was responsible for over $144 billion in revenue. While Covid put a temporary hold on that growth, tourism has made a strong recovery in the state. International travel which in the past has contributed $1 out of every $5 spent is still in recovery and only at about 88% of 2019 levels so adding that to the existing tourism is a positive.
To Sum It Up
At Luxury Hotel Advisors, we continue to consider California a good hospitality investment and a smart choice for knowledgeable investors. Tourism will always be a major component of the California economy and with careful research and a solid investment plan, investors can enjoy profitable returns and long-term growth potential in this market. If you are considering an investment in Southern California, let us know how we can help guide your decision and even share some off market opportunities with you.