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Hotel Building Activity Expected to Ease Till '90 : Laventhol Forecasts That Room Rate Squeeze on 122 Largest Facilities Should Taper Off

January 15, 1988|MICHAEL FLAGG | Times Staff Writer

Orange County's 122 largest hotels--many of them unable to raise room rates much because of intense competition--will get a breather for a couple of years until another wave of hotel construction begins sometime after 1990, Laventhol & Horwath said Thursday in its annual real estate forecast.

The accounting firm said occupancy rates at hotels with more than 100 rooms actually rose slightly in 1987, from 69% to 71%. But room rates failed to rise faster than the inflation rate, the firm said.

Average price for a room in one of those hotels last year: $67.25, up 18% over the $57 a night that a good hotel room cost 5 years ago but still lower than the inflation rate for that period, the firm said. The reason: Too many hotel rooms. Five years ago there were 15,100 rooms in Orange County hotels of more than 100 rooms. Now there are 25,600. While demand for hotel rooms has also risen faster than all but the most optimistic developers predicted, it still hasn't been enough to allow hotels to raise their rates as much as they would like.

Still, some parts of the county are doing all right, said Laventhol & Horwath hotel expert David R. Kinkade.

The bigger hotels in the central part of the county, including Anaheim, have managed to keep the guests coming to their 10,200 rooms, the largest hotel market in the county.

But they too have been unable to raise room rates much, afraid of scaring away tourists and dependent on groups that usually get discount rates. Six new hotels elbowing their way into the market since 1985 haven't helped either.

It's the Newport Beach, Irvine and Costa Mesa hotel market that is really feeling the pinch, however.

The area in Irvine near John Wayne Airport tends to get a lion's share of the new first-class hotels--too many hotels, in fact, for the market to handle right now.

The number of rooms in the market has doubled to 6,600 since 1983, driving one hotel--the heavily indebted Registry--to seek the protection of bankruptcy proceedings. And while the Registry's problems are severe, it's not alone in having trouble turning a buck in the market.

"Overbuilding in some markets and operation difficulties have caused financial problems for a number of the county's hotels," according to Laventhol & Horwath's forecast.

But now the wave of construction has tapered off, and it probably won't start again until occupancy rates rise far enough to interest developers in hotels again, said Kinkade. That's not likely to be until after 1990.

At that point, a lot of the new hotels will be luxury hotels for tourists hitting the beaches south of Newport Beach, where the Irvine Co. alone has permission to build four resort hotels.

Another hotel survey released Thursday, which included 46 more Orange County hotels than the Laventhol survey, also points to the Anaheim area as the strongest hotel market in the county. Pannell Kerr Forster put the occupancy rate for Anaheim area hotels and motels at 74.5% last year. That's expected to rise very slightly to 75.1% this year.

In the area around the airport, by contrast, occupancy rates were calculated by the accounting firm to be 62% last year and were expected to inch up to only 62.6% this year.

The countywide average was 69.5% last year and forecast to be 68.8% this year. Pannell Kerr Forster ranked Orange County first among California's regions last year in growth in demand for hotel rooms. This year it will slip to third, the accounting firm said, behind the desert regions of the state and San Diego County.

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