Marcus & Millichap

California Hospitality Investment Forecast

First Half 2019

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New Legislation Supports Hotel Demand; Investors Look to Yields in Smaller Metros

Recently enacted regulations could bode well for Los Angeles hotels. Steady demand throughout many of California’s smaller markets and San Diego will support a slight improvement in statewide occupancy this year. San Diego’s numerous attractions lure tourists, creating record visitation that bodes well for area hotels. During the past five years, annual occupancy in the market has improved roughly 450 basis points and the upward trend will continue into 2019. Supply pressures in other larger metros, including Los Angeles and San Francisco, are limiting further statewide occupancy improvement. While construction weighs on the rate in these markets, both maintain a relatively high annual occupancy near or above 80 percent. New regulations surrounding short-term rentals in Los Angeles, in particular, may limit some of the decline in occupancy moving forward. The legislation enforces a 120-day cap for entire home rentals and requires the host to list their primary residence.

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