The Orange County hotel market held up extremely well during the economic recession. We are now seeing average daily rate (ADR) and occupancy levels at or above the 2007 peaks.
The Smith Travel Research (STR) statistics through October 2011 show the county’s beach areas reporting a $164.41 ADR at 71.3 percent occupancy with a $117.25 revenue per available room (Rev PAR). The beach area’s Rev PAR is now just under 12 percent below the 2007 market peak. We forecast that we will back to or above the peak levels in 2012.
In the Disneyland area, we see an ADR of $128.02 at 73.6 percent occupancy with a $94.22 Rev PAR. This Rev PAR is already 6.7 percent above the 2007 peak and climbing.
There are a number of reasons why we’re seeing such strong performance numbers in Orange County. These include:
(i) The increase in domestic travel, with many travelers choosing to stay in the United States instead of going abroad
(ii) The increase in international travel due to the relative weakness of the U.S. dollar, making Orange County a prime destination
(iii) The complete lack of new hotel development, which has created a growing demand that has helped fuel rate increases
Orange County’s strength is also why it’s managed to escape much of the distress we saw in other California markets. During the downturn, Orange County only had six hotels that were foreclosed on and only five that entered default. For comparison, Los Angeles County had 16 foreclosed hotels and 21 in default. San Diego County had 21 hotels foreclosed on and 16 in default.
Last year saw a huge rebound in California hotel sales, not just in Orange County. Orange County hotel owners have been reluctant to sell mostly due to the market’s continuing improvement and the relatively low level of distress.
The number of Orange County hotel sales fell 20 percent in 2011, with only four 100+ room properties sold. This was half the number of 100+ room sales that we saw in 2007. The median price per room for Orange County hotel sales jumped 31 percent in 2011, but as the median was still 22 percent below the 2007 peak, we predict that there is a lot more room for increase in 2012.
All in all, the outlook is very positive for Orange County hoteliers: strong economic fundamentals combined with very little new development equals robust price appreciation.
— Alan X. Reay, president, Atlas Hospitality Group in Irvine