Los Angeles� lodging fundamentals weakened considerably in 2001 due to a slowing domestic economy, weakening consumer confidence, and the impact of the terrorist acts and resulting war on the global business environment.  Occupancy in 2001 through October declined 7.2 percentage points compared to the same period last year.  The economic slowdown that was already apparent prior to September accelerated in the aftermath and caused Los Angeles� economy to be in a state of flux. Mayor Hahn�s economic analysts are projecting that the city�s unemployment rate could reach 8 percent and lead to lost wages totaling approximately $23 billion. In addition, as the tourism industry continues to struggle, the local economy is anticipated to lose approximately $2 billion in tourism revenues and approximately $71 million in travel-related taxes. For 2002, the Los Angeles lodging market is poised to recover, primarily due to diversified tourist attractions and limited new hotel room supply.

Major Demand Changes

Given Los Angeles� economic diversity, lodging and tourism to the area should rebound at a more rapid pace than comparable major U.S. markets. With over a third of the U.S.  motion picture industry employed in Los Angeles, more than 15% of the nation�s employment in the aerospace industry, and 65 percent of all West Coast container traffic to Latin America and Asia, the city should begin to recover in the first quarter of 2002.

Over the next several years, major developments anticipated to facilitate lodging demand in the Los Angeles area include TrizecHahn�s Hollywood project, the Playa Vista development, the Disney Concert Hall, and the second phase of the Staples Center project. TrizecHahn�s $615 million retail and entertainment complex at Hollywood Boulevard and Highland Avenue opened in November 2001 and includes the 3,300-seat Kodak Theater that will permanently house the Academy Awards. The Playa Vista initiative is underway and aims to develop approximately 1,087 acres on the west-side of Los Angeles with 2.5 million square feet of office and retail space, 13,000 residential units, and 340 acres of restored wetlands. In downtown Los Angeles, the $275 million Disney Concert Hall development, designed by Frank O�Gehry and anticipated for completion by 2004, will house the Los Angeles Philharmonic. The recently approved second phase of the Staples Center development is anticipated to include a large retail and entertainment component.

Additional initiatives likely to positively impact Los Angeles� lodging demand include the ambitious $12 billion Los Angeles International Airport (LAX) expansion plan, the proposed biomedical park adjacent to University of Southern California�s Medical Center, and Disney�s third theme park development in Anaheim. Given recent events, however, the LAX and Disney projects are being reevaluated, while the biomedical park development is currently delayed due to land and zoning issues.

Major Supply Changes

During 2001, the 400-room St. Regis at Monarch Beach opened in July, Disney�s Magic Inn & Suites opened as the 359-room Anabella Hotel in March, the 750-room Grand Californian Hotel opened in January, and the 502-room Paradise Pier Hotel opened in February. Overall, Los Angeles� lodging supply growth has been limited due to ongoing difficulty in obtaining hotel financing, the softening in lodging demand, and growing economic uncertainty.  Hotel projects currently under construction include the 637-room Renaissance hotel in Hollywood, expected to open early 2002, and the 519-room Hyatt resort in Orange County, anticipated to be completed by October 2002.  Limited lodging supply growth, however, is anticipated due to growing economic uncertainty, which has caused the deferment of several projects that were planned to break ground in late 2001 or early 2002, including a $50 million hotel development in Universal City and a $37 million Wyndham hotel development in Glendale that have been indefinitely postponed.

Political/Economic/Legal Changes

Given economic uncertainty and plummeting consumer confidence, the political, economical, and legal environment will play a prominent role in 2002 to stimulate lodging demand. With declining tax revenues, however, local authorities will have limited resources to assist struggling industries. Since September 11, government officials project sales and hotel bed taxes to decrease approximately four and nine percent, respectively, compared to the budget.  Unable to receive sufficient government subsidies, many hotels in the greater Los Angeles area implemented an energy surcharge to deal with rising energy costs.

Lockheed Martin�s recent $200 billion contract with the U.S.  Department of Defense is anticipated to send a positive ripple effect throughout the Los Angeles aerospace industry, reviving business travel. California�s recent $5 million campaign to promote travel and tourism within the state, combined with the proposed $10 million to $15 million increase in marketing spending, should help lure weekend drive-in leisure travelers to Los Angeles and its surrounding areas. Successful implementation of the proposed LAX initiatives focused on making air-travel safer and easier for international and domestic travelers, should help the city stimulate air-travel and tourism to the greater Los Angeles area.

Jeff Dallas, Los Angeles
Troy Jones, Los Angeles
Nir Liebling, Los Angeles 

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