Study Finds Negative Impact in Projected WeHo Hotel Growth

Illustration of the Pendry hotel on Sunset Boulevard as seen from Olive Drive (Illustration by Erlich Architects)
Illustration of the Pendry hotel on Sunset Boulevard as seen from Olive Drive (Illustration by Erlich Architects)

A study of West Hollywood’s thriving hotel market has found that three new hotels under construction aren’t likely to have much negative impact on the existing 18 hotels. The new hotels will add 581 rooms to the current supply of 2,060 rooms.

But the study shows a major impact with the construction of an additional four hotels (and the minor addition of three rooms to another) that already have been approved by city planners or currently are under review. Those hotels would add an additional 648 rooms to the market.

The study, conducted by CBRE Hotels, predicted that the hotel room occupancy rate this year would average 82% (although it already had hit 88.5% as of July). One scenario examines the addition of The James, Kimpton La Peer and Edition hotels, which already are under construction. CBRE predicts the addition of those 581 rooms would push the occupancy rate down to 77% by 2018 before it rises to 80% in 2020.

A second scenario also adds the Pendry (149 rooms) and three new rooms at the San Vicente Bungalows. CBRE projects that the combination of hotels in scenario one and scenario two would push the occupancy rate down to 75% in 2019. The study says the occupancy rate would rise to 80% in 2021. The Pendry and San Vicente projects have been approved by the city but construction hasn’t begun.

new hotel growthThe third scenario examined by CBRE includes scenarios one and two along with proposed hotels whose plans haven’t yet been approved by the city. They include 8950 Sunset, Robertson Lane and 7811 Santa Monica Blvd. (Not included in the study is the hotel proposed for 8447 Santa Monica Blvd., the site of Barney’s Beanery, which only recently has surfaced.) Those additional 496 rooms would push the occupancy rate down to 68% by 2020. The study predicts that rate would only have risen to 80% by 2026.

While the study projects a steady increase in average room rates (which were $294 as of July), it predicts that if all approved and proposed projects are built, the average rate per room that actually is occupied will decline from $260 now to $243 in 2020. That is an important metric because it indicates how much revenue hotel owners actually will realize when faced with more competition.

But while the increase in hotel rooms might hurt existing hotels, the city, whose largest single source of revenue is the hotel room occupancy tax, would continue to see growth there. The city’s 2016/17 fiscal year budget projects $23 million in hotel tax revenue. The CBRE study estimates that will continue to grow with the new hotels, reaching $36.8 million in the 2020/21 fiscal year.

A summary of the study by the city’s Finance & Technology Services Department says that “although the additions of the three ‘Under Review’ hotels will induce some demand into the local market, the openings of these hotels will depress market occupancy. The ‘Under Review’ hotels would potentially cannibalize demand from the existing and other proposed hotels that precede them in the first few years of opening; however, given the strength of the market it is anticipated that the hotels could be absorbed within six years.”

While CBRE says West Hollywood would be able to eventually absorb the 1,229 new rooms, going forward any new hotels will have to carve out a distinct niche so as not to compete so directly with existing hotels. The study notes that the proposed Robertson Lane hotel will include 10,000 square feet of meeting space, something in short supply in existing hotels, which would allow it to attract corporate groups. And 8950 Sunset’s positioning as a five-star luxury hotel will make it more of a competitor with luxury hotels in adjacent Beverly Hills.

The CBRE study considered new and planned hotel development in Hollywood, Beverly Hills and downtown Los Angeles. It also looked at the increase in short-term rentals in West Hollywood through services such as Airbnb. CBRE determined that there were 271 active Airbnb units in West Hollywood last year, which are equal to 13% of the city’s hotel rooms. And CBRE estimated that 183 of those Airbnb units were available for rent each night. Using data from Airbnb, the study estimated rentals of those units generated $7.6 million in revenue between October 2014 and September 2015. If the city’s 12.5% transient occupancy (hotel room) tax had been levied on those Airbnb units, it would have generated $945,364 in tax revenue. The CBRE study notes that competition from Airbnb and similar services can limit the ability of existing hotels to raise rates and even force a lowering of rates.

The Financial & Technology Services Department report notes that since last year the number of active Airbnb listings has grown to more than 400 — an increase of approximately 48%. “If this increase were also applied to hypothetical City transient occupancy tax revenue from short-term rentals the new total would equal $1.4 million,” it says, adding that the analysis didn’t include short-term rentals through other services.

  1. What about the impact on the community? Traffic? Noise? Losing the charm of our city? Enough with the hotel construction already!!

  2. WeHoMikey, sorry to break this to you, but short-term rentals have been around a long time before AirBnB. As further examples, eight years ago, I had a friend that did business down here 10 days out of the month. I rented my spare room to him. A few years later, I rented to a lady that works here a week out of the month. I did what I wanted with it the rest of the month. There are many people who work in this city part time. Not all of them want to, or can afford to, live out of a hotel for a week each month.

    All AirBnB did was create an easy platform for anyone to get in on it, even if they are violating their lease, their HOA rules, etc.. They city shouldn’t have slapped a “solution” down that punishes everyone, and treats every situation the same. As I mentioned before, other cities have recognized this. If I’m not mistaken, even Duran and D’Amico support private room rentals in one’s home (based on their comments from a few meetings ago).

  3. We don’t care about hotels. They’re disgusting. We want to rent our places on Air B and B like civil people. Hotels are so gross. Why does City Concil have to bend over to corporations to rob from the citizens?

  4. He could be ZONED not to be allowed to have guests in his home, WeHoMikey? We’ll see soon enough what they have to say about that in Santa Monica and several other cities.

  5. Can anybody here tell me how I can find out whether this project will have entrance/exit access along Delongpre? I live on that street, and I’d really like to know if this monstrosity is going to destroy the quaint and quiet atmosphere the street now enjoys.

  6. Well said, Randy, and I agree. I would only add that a tenant who, by definition, doesn’t own his unit should be allowed to host guests in his home. Any restriction on that should apply to every tenant, for whatever reason, as to whom, how many, and how frequently guests would be allowed. How ridiculous is that?

  7. @blueeyedboy, thank you. I have commented on this issue before, in other articles on this site. A person who owns their home (especially when it is not in a condo building) and is present to host their guests should be able to. I’m not the only one who thinks this way. The cities of San Francisco, NYC, Sacramento and Santa Monica have all passed short term rental ordinances that allow it in owner-occupied units. Property owners should have more rights than this. And I’m not referring to building owners who turn apartments into hotels, or people who own a dozen properties in the area and rent them short term full-time. I’m talking about people who live in and own their homes.

    The proposal for City of LA will group all listings as one and the same, and this is an overreaching approach. After over 100 rentals, not once, ever, have I had an unruly guest. Quite the opposite. Most people have been super respectful, and very grateful to have had the opportunity to stay in this area at an affordable rate. Just this week, I had a guest from Chile who had never been to WeHo. He had a blast, and spent money at local restaurants and bars, in addition to doing the normal LA “touristy” things. I have another one here this weekend, doing the same. He has business in the Inland Empire, and my AirBnB allowed him the opportunity to visit the West Hollywood area for the weekend.

  8. Very unfortunate that The Sunset Tower, THE most elegant structure on Sunset w Chateau Marmont in second place along with Sunset Plaza buildings, has to suffer the indignity of the commercial video screened/billboard of a hotel nearby. Uncoupled from the two hulking prison like structures @ La Cienega this boulevard will not be getting any 5 star design reviews. Highest they could achieve perhaps 1 1/2 – 2 stars simply because they offer hotels with an overhead roof.

  9. It’s a quality of life for the stakeholders in the community. They should rightfully expend the implied peaceful enjoyment of their residential homes without having the atmosphere compromised by quasi commercial ventures driven by the so called free market economy inspired by disruptors.

  10. I dont believe landlords should be allowed to rent out apartment units as short-term. If you do that…you’re running a hotel and that is running a business. If you own your own home and rent out a room (and you are still there on-site). I’m ok with that. The problem with all this is enforcement. Until we have a dedicated person to check out each listing…we can complain all we want to. But it will still continue.

  11. I have to admit I am not entirely comfortable with a homeowner being disallowed from doing what he wants with his property. If he wants to rent it out to short-term tenants while he is not on the property, for the sake of ideological consistency I suppose I have to say he should be allowed to do it. But not renters whose name is on the lease but they don’t live there. That is indeed wrong and should not be permitted.

  12. Richard K. I absolutely agree with you! If the homeowner, or the tenant on the lease of an apartment is not present to host guests, all kinds of problems are created with these short-term rentals, and it should not be allowed. It takes available rental housing off the market so that people who want to establish a long-term residence have less to choose from and it distorts the local economy by driving up rents. But for someone to have guests in their home is no one else’s business. I have always lived around neighbors who entertain very frequently, and it sometimes gets to be a bother. When that is the case I know exactly whom to complain to; the person who lives there. I have also always lived around neighbors who work from home and they have people coming and going all the time. So a full-time neighbor who works from home by entertaining guests who pay him for his hospitality is no different than what I have described with those who entertain in their home, and those who work from their home. If Randy, who commented above, has guests in his home, what business is it of anybody else what kind of arrangement they have between them? I believe in the free market. When things change, the market adjusts to accommodate those changes. The market will discipline it’s self, and everything will fall into place in the way it should unless regulators get in the way, and then it all gets distorted.

  13. @blueeydboy, there are 10 short-term rentals on my block. Only 1 is a room in a house where the home owner is present. The others are homes where large groups of guests come to vacation and party in our beautiful city. The property owners are not present when the guests are.

    Airbnb and similar sites are a burgeoning business for absentee owners. This is far from an ideal arrangement for neighbors and residents who live here full time, need to go to work in the morning and go to sleep at a reasonable time. When you’re on vacation you’re on vacation and you should be able to enjoy yourself. But the noise and disturbance caused by the constant influx guests is untenable to neighbors and residents.

    This is a lose/lose situation, it takes away rooms from hotels, taxes from the City and most importantly is a real burden on neighbors and their right to the quiet enjoyment of their homes.

  14. I have traveled to places, Randy, that I would never have gone to if I had not been able to stay at an AirBnB. And I put money into the economy of each city I visited that they wouldn’t have had if I hadn’t been there. “Government” people seem unable to understand that concept.

  15. @blueeyedboy, thank you. As someone who lives just over the border and hosts a room in my owner-occupied unit (no, its not a condo), I can’t tell you how many people that have expressed gratitude to visit our wonderful area, at a fraction of the cost. July hotel average was $294 a night! Seriously, that’s not affordable for most people. My AirBnB guests have all been extremely respectful, and most of them are spending money in our local economy.

  16. Don’t they realize there’s a drought? Why do we have to take shorter showers and not water our lawns, yet these hight end hotel guests can run their showers all they like. Oh wait, they can opt not to get their towels changed daily. That’ll put a dent in it.

  17. I went to a meet and greet a few weeks ago at the West Hollywood Library where some developer wants to build a hotel just on the west side of the 9000 Sunset Building. It’s all very preliminary. The rendering looks like a staggered tower or stack of pancakes. They also intend to incorporate two vacant properties just south on Harratt St. No mention of that one in this article.

  18. The out-of-towners who use AirBnB are in WeHo because they can afford to be here. They shop in WeHo, go to our restaurants, bars and clubs and even buy gasoline here. They wouldn’t be here if they had to pay three times the nightly rate of AirBnB at one of these hotels. WeHo isn’t losing any money by residents who host guests in their homes. They are actually making money. Looks like a win/win to me.

  19. Yes, Larry. And what is the point of all of this building if revenue will be down (in the short term, at least)? Are we trying to turn West Hollywood into Vegas? Do we need this many additional rooms? We have a housing shortage. Of course, the City can’t force developers to build what they want they want them to build, but couldn’t they provide some sort of incentive? In the meantime, I’m sure the City has no problem with additional hotels being built, with the projected increase in tax revenue.

  20. Funny how we can’t build micro-units or enough affordable housing. Maybe one of these hotels will go bust and West Hollywood Housing Corp can swoop in and make a dent in the need for senior or disabled, or low or middle income housing.

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