L.A. hotel business holding up but demand is softening

An annual report on the hospitality sector shows occupancy slipped last year while room rates rose 5%.

Los Angeles County hoteliers are faring better in the economic downturn than their counterparts in other markets, but 2009 is still going to be a challenging year, a report released Thursday said.

The Los Angeles hospitality market, the fifth-largest in the country, outperformed other major markets in occupancy and revenue in 2008, according to an annual report by consulting firm Ernst & Young based on data collected by Smith Travel Research.

Nevertheless, "demand is softening in Los Angeles," said Troy Jones, a principal at Ernst & Young. The economy has been stung by the contraction in financial services and banking. Other big local business categories, including trade through the ports of Los Angeles and Long Beach and entertainment, have also suffered.

When businesses hurt, so do hotels, Jones said. Corporate travelers generally pay more for rooms than leisure travelers and last-minute business travelers pay the most of all.

Hotel occupancy in Los Angeles was estimated to be down 3.2 percentage points to 73.3% in Los Angeles last year. The average daily room rate, however, rose almost 5% from 2007 to $138. The increase could be attributed in part to millions of dollars' worth of improvements done to local hotels in the last two or three years that enabled owners to raise prices.

Though some of those hotels were renamed after their makeovers, few new hotels have been built from the ground up in recent years, so Los Angeles is not as oversupplied with rooms as some markets, Jones said.

"Some markets have demand and supply issues," he said. "Here the issue is just demand."

There will be some new hotels coming on-line this year, however, including the 305-room W Hollywood Hotel & Residences, the 209-room Miyako Hybrid Hotel in Torrance and the 160-room Hotel Esterel in Long Beach. A 1,000-room JW Marriott and Ritz-Carlton is scheduled to be completed in downtown Los Angeles in 2010.

Vacationers can expect discounts on rooms this year as hoteliers try to replace their lost corporate business with leisure travelers, Jones said. He declined to speculate on how rough the coming months would be for the business.

"The issue everyone is struggling with in the hotel industry is: How long and how deep is the recession going to be?" Jones said. "It's what's keeping everybody up at night."

When the economy does recover, Los Angeles hotels will spring back six to nine months later, he said.

By Roger Vincent
Source: Los Angeles Times