|By Kathy Seal H&MM / December 1998
Anaheim, Calif.—While some economists are predicting a national recession, the outlook for travel to Southern California in 1999 can be summed up in three words: flat, flat and flat.
That was the word uttered repeatedly at UCLA Extension’s 10th Annual Southern California Visitor Industry Outlook Conference in early November.
Although recession jitters are abundant, one economist predicted the U.S. economy will have a “soft landing”—a 3.5 percent slowing next year.
Jack Kyser, chief economist for the Los Angeles Economic Development Corp., said he disagrees with those predicting a recession because he believes the Federal Reserve Board will monitor the nation’s economy carefully and cut interest rates when necessary. One effect of such rate cuts would be to lower the value of the dollar, thus stimulating international tourist travel to the United States.
“A weaker dollar in 1999 is good news for anybody selling a service, especially overseas,” Kyser said.
Predictions of flatness are not bad in California, where the economy grew faster in 1998 than the nation’s economy as a whole. Hotels in two of the three counties that make up southern California—Los Angeles and San Diego—operated at capacity, said Bruce Baltin, senior vice president of PKF Consulting.
In Los Angeles County, the hotel market capped out at about 74 percent citywide both this year and last, and should register about the same percentage in 1999, he said.
Occupancies in Los Angeles County’s strongest submarkets have soared. According to PKF estimates, last year, they reached nearly 72 percent in West Los Angeles, 80 percent in Santa Monica, and, 83 percent in Marina del Rey. Even downtown Los Angeles, long the poor relation of its more affluent west side and southern cousins, did its best since the 1980s, with estimated occupancies rising to 70 percent, thanks to a 40 percent increase in convention room nights sold, Baltin said. He predicted occupancies downtown will grow another percentage point next year.
While San Diego County hotel market occupancies are also expected to remain flat in 1999, they were even stronger than those in Los Angeles last year, reaching an estimated 77 percent. San Diego’s success, Baltin said, lies in its equally strong appeal to all three demand segments: business, leisure and group travelers.
Today’s tight construction financing means that developers are having a hard time responding to the strong lodging industry market with new projects.
“Three months ago, we were working on 25 to 30 proposed hotels in Southern California,” said Baltin. “Most of those now have slowed dramatically, and many of them have been put on the shelf.”
As a result, with demand growing and few new properties in Los Angeles County, average daily rates will grow an estimated nine percent to $105 by the end of this year, and as much as 6 percent more in 1999, Baltin said. The situation is even tighter in San Diego: Average daily rates in that county are estimated to grow by 12 percent to $131 by the end of this year, and an additional 6 percent next year.
The third county in the state’s southern triumvirate is not as healthy as Los Angeles and San Diego counties. Orange County is suffering from the effects of construction under way in Anaheim, whose hotels constitute half the county’s supply. Tourists and conventioneers have stayed away in record numbers as Disney builds a new theme park, the city upgrades its infrastructure and the Anaheim Convention Center expands.
As a result of these and other factors—including the Asian financial crisis and El Niño—the city’s occupancies began to plummet unexpectedly in June, and are estimated to wind up the year more than four points behind 1997 occupancies, at 69 percent. Baltin predicted they would lose another point in 1999, and that county occupancies overall would hover for both years at 70 percent. He predicted that the area is not likely to turn around until Disney’s California Adventure theme park and resort opens in 2001, although there are some signs that conventions could start pushing occupancies back up in 2000.