California is a state on the west coast of the United States and is home to some of the most famous people, places and companies in the world. A suburb of Los Angeles called Hollywood has made the state an internationally known one, while its vast stretches of coastline, its near-perfect weather all year round and beautiful surroundings make it an international draw for tourists. In addition, Silicon Valley is located here, giving the state one of the most highly advanced and significant high-tech industries in the whole country. It is therefore an important destination for business travelers as well as tourists.
The origins of California’s business hub status go back to the 1930s when a particularly forward-thinking lecturer at Stanford University began encouraging his brightest students to set up shop in Santa Clara Valley (now better-known as Silicon Valley). This lecturer, Dr. Frederick Terman, perceived that his students had enough of their own aptitude and innovation to contribute the US economy on their own, instead of joining already established electronics companies in the east.
The first two students to follow his advice single-handedly changed the scope of the US high-tech industry in its infancy and their companies endure to this day, in fact, the names of these two students would become known worldwide for the mammoth company that they created: William R. Hewlett and David Packard, whose little electronics manufacturing store in Silicon Valley would grown to become the multinational Hewlett-Packard (HP) brand.
In addition, California, if it were a sovereign nation, would have one of the ten largest economies in the world, driven by its agricultural, information technology, aerospace and petroleum sectors. In terms of business travel then, California hotels offer the three key foundations that are essential to the strength of hotel occupancy: first, the state has an impressively diverse and developed economy, making it a magnet for business travelers from across the US but particularly the east coast. Secondly, its tourist attractions from Hollywood and the beaches of Malibu to the vineyards of Napa Valley and the majestic span of the Golden Gate Bridge, provide it with millions of visitors both domestic and international each year. Thirdly, its hotels, especially the major brand names and chain hotels such as InterContinental, Hilton and Westin provide it with the conference and exhibition facilities necessary for major events to be held. In addition, there is the world famous Staples Centre where some of the most prestigious gatherings in the world take place each year, notably the Grammy Awards and Oscars.
California then is a myriad of diversity, developed, attraction and prosperity. But the downturn has knocked the state hard the entire scope of its economy and hotels have been particularly effected, but through 2010 and into 2011 they appear to be finding their feet again.
California’s hotels report massive increase in sales for first half of 2010
In the first half of 2010 the hotel industry across California has seen strong growth in sales and demand begins to return to the travel and hospitality markets.
A comprehensive review by Atlas Hospitality Group found that individual sales volumes were up 59%, which means hotels are seeing 59% increases in the number of bookings made for the year so far.
What is even more astounding is the dollar volume increase, which tracks the actual value in US dollars of these purchases, which went up by 172%.
This is extremely important for its suggests that not only are more bookings being made and hotel rooms occupied, but demand is returning in such a way that long stays (one week or more) and luxury hotels and hotel suites are being occupied and not just the cheapest components of the market.
This reaffirms a prediction made by STR Global recently that the upper-scale and luxury segments of the market would lead the recovery.
According to hotel industry analysts, this is a ‘text book’ recovery and shows that consumer confidence among the middle income earners has not yet fully recovered from the downturn.
Indeed a report by the Financial Times on the US economy recently stated that due to the fact that 10% of the US population fuel 80% of the economy, spending by the rich is indeed the foundation of the country’s GDP, the results are therefore encouraging.
July is a positive month for US hotel industry, but key California sectors let the state down
STR’s hotel analysis for July showed the US hotel industry experiencing gains in all three key performance metrics (Average Daily Rates, Occupancy and Revenue Per Available Room).
In July 2009 to July 2010 measurements, the industry saw occupancy increases of 10%, ADR increases of 1.3% and revpar growth of 11.5%.
This translates to occupancy across the US of 63.4%, ADR of $96.65 and revpar of $61.32.
California, with her highly-significant economy, her range of tourist attractions, her iconic status as the home of Hollywood and her sizeable population of fabulously wealthy celebrities, captains of industry and major corporations should therefore have led this growth, but the state didn’t, key sectors such as San Francisco, the famous ‘city by the bay’ saw declines in key metrics.
San Francisco is widely regarded as one of the most visited cities in the world, yet from July 2009 to July 2010 occupancy decreased 2.3% to 74.4%, this, however, is still well above the national average of 63.4%. Revpar also decreased to $90.10, a 3.9% drop, although again this was above the national average of $61.32.
Distressed California Hotel Survey by Atlas shows rise in hotel defaults through second quarter of 2010
Atlas Hospitality Group is a leading hotel industry analysis firm, their special report on the state of the hotel industry in California shows that the industry continued to suffer through the second and inter the third quarter of 2010.
The number of hotels defaulting on loans or going into foreclosure has risen considerably. In 2010 so far, 478 California hotels have been foreclosed on or are in default, which constitutes a 132% increase from the number of foreclosures and defaults in the same period last year.
78% of these properties were independent hotels, revealing the intense vulnerability of this segment of the market at present. Independent hotels face greater pressure as they have no major corporation to lean on through the tough economy.
Also of concern is the fact that, of all the hotels that have been foreclosed on (100), only 12% of them have been resold to new investors, suggesting a critical lack of confidence in the market, which will only deepen concerns that a double-dip recession is looming.