Photo: Jesus Curiel
By Erik Ransdell and Mike Annunziata
Strands Realty Group
January 07, 2025
As the hospitality industry steps into 2025, California stands at the forefront of recovery, with urban hotels in its major cities showcasing impressive resilience and growth. Additionally, the resurgence of corporate retreats is reshaping the group travel sector, creating a unique synergy that bolsters California's status as a key player in the national hospitality landscape.
California's Urban Hotel Markets: A Pivotal Recovery
The urban hospitality market in California has emerged as a focal point of industry recovery, driven by strong international tourism, evolving corporate travel patterns, and targeted investments. Cities like Los Angeles, San Francisco, and San Diego are setting the stage for growth in the state’s hospitality sector.
Los Angeles is witnessing a robust revival, thanks to its position as a global gateway and the easing of international travel restrictions. According to STR’s 2024 Market Performance Analysis, Los Angeles hotels recorded a year-over-year revenue per available room (RevPAR) increase of 12%, with international travelers accounting for 40% of total bookings. Adam Burke, President of the Los Angeles Tourism & Convention Board, stated, “International visitors are crucial to our recovery, particularly in Southern California, where their spending supports countless businesses.”
Major events such as the 2024 Super Bowl and preparations for the 2028 Olympics have bolstered demand, with ADR (Average Daily Rate) climbing by 15% compared to pre-pandemic levels in high-traffic areas like downtown LA and Beverly Hills. LAX’s $14 billion modernization program, completed in late 2024, has further enhanced accessibility for international travelers, contributing to the city’s recovery.
San Francisco’s recovery has been more gradual but noteworthy. According to CBRE, the city’s hotel occupancy rates rose from 64% in 2023 to 72% in 2024, signaling a gradual climb back to pre-pandemic norms. While high delinquency rates on commercial mortgage-backed securities (41.6% in 2024) have posed challenges, there’s optimism as conference bookings increase. The Moscone Center reported a 30% uptick in scheduled events for 2025, with industries like tech and biotech leading the charge.
Tourism remains a strong pillar for San Francisco. Data from Visit California shows that international travelers contributed nearly $4.1 billion to the Bay Area economy in 2024, up 23% from the previous year. Key markets like China and the UK are driving this growth, with direct flight routes resuming in late 2023.
San Diego has emerged as a leader in the “bleisure” travel market, blending business and leisure stays. According to STR, the city saw a 10% increase in extended-stay bookings in 2024, with a notable rise in weekday occupancy rates linked to biotech and defense-related business travel. Attractions like the San Diego Zoo and the USS Midway Museum continue to draw leisure travelers, with 85% of surveyed visitors extending their business trips for leisure activities.
Corporate Retreats: A Catalyst for Urban Hotel Growth in California
Corporate retreats are playing an increasingly significant role in the recovery of California’s urban hotels. As businesses embrace hybrid work models, in-person gatherings have become essential for fostering collaboration and maintaining company culture.
Urban California is a top choice for corporate retreats, offering the perfect blend of work and leisure amenities. In Los Angeles, group sales accounted for 28% of total hotel revenue in 2024, a 12% increase compared to the previous year. Hotels like the Ritz-Carlton Los Angeles and the Fairmont Century Plaza are leading the charge, offering state-of-the-art meeting spaces and curated team-building packages.
Jeff Doane, Chief Commercial Officer at Omni Hotels & Resorts, highlighted this trend, stating, “California’s diverse locations provide companies with the flexibility to host retreats that are both productive and inspiring.”
Hotels in Los Angeles are incorporating creative offerings such as rooftop yoga sessions, private Hollywood tours, and immersive wellness packages. The city’s focus on blending cultural experiences with business needs is setting a new standard for corporate retreats.
In San Diego, group bookings have grown by 18% year-over-year, according to a report by the San Diego Tourism Authority. Properties near the waterfront have seen particularly strong demand, with corporate teams favoring outdoor team-building activities such as sailing, paddleboarding, and beach volleyball. The city’s Convention Center recorded its busiest year since 2019, hosting over 120 major events that generated $1.9 billion in economic impact.
San Francisco’s appeal to corporate groups is fueled by its proximity to wine country and renowned culinary scene. Data from Visit Napa Valley indicates a 20% rise in corporate retreats hosted at wine country resorts in 2024, many of which partner with San Francisco-based hotels to offer dual-location packages. Culinary experiences, such as chef-led team dinners, are becoming a hallmark of executive retreats.
Addressing Challenges in California’s Urban Markets
Despite these positive trends, California’s hospitality sector faces ongoing challenges, including labor shortages, rising costs, and regulatory complexities.
Staffing continues to be a significant hurdle for urban hotels. The California Hotel & Lodging Association reports that 78% of hotel operators faced labor shortages in 2024, with housekeeping and food service roles being the hardest to fill. In response, many properties are leveraging technology to improve efficiency and reduce dependence on manual labor. AI-driven tools like chat-based concierges and smart room systems are becoming standard in upscale properties.
Rising operational costs, driven by inflation and utility expenses, are putting pressure on profit margins. A study by Green Lodging Trends found that 64% of California hotels have adopted energy-efficient lighting and HVAC systems to reduce costs. Many are also participating in statewide initiatives, such as Clean California, to align with sustainability goals while improving their bottom line.
Although cities like Los Angeles and San Francisco have enacted stricter short-term rental regulations, platforms like Airbnb remain a competitor. A survey by STR found that 45% of travelers consider short-term rentals as alternatives to hotels, particularly for family or group stays. Urban hotels are differentiating themselves by emphasizing superior service, concierge-level amenities, and flexible group booking processes.
Opportunities on the Horizon
California’s hospitality market is poised for further growth, driven by:
With global travel restrictions lifted, international arrivals to California are projected to grow by 18% in 2025, according to Visit California. Key markets such as Los Angeles, San Francisco, and San Diego are launching aggressive marketing campaigns to capture this demand. Los Angeles International Airport expects a record 75 million passengers in 2025, with 30% coming from international markets.
Sustainability is becoming a key differentiator in California’s hospitality sector. Properties incorporating green building practices, such as solar panels and energy-efficient systems, are capturing the attention of environmentally conscious investors and guests. A recent CBRE report highlighted that sustainable hotels experience 20% higher booking rates on average compared to non-certified properties.
Recent zoning reforms in California have opened the door for innovative projects, including the conversion of underperforming office buildings into boutique hotels or mixed-use developments. These changes address land scarcity and provide fresh opportunities for urban revitalization.
Extended-stay accommodations, catering to digital nomads and long-term travelers, are thriving in California’s urban markets. STR data shows that extended-stay properties in the state achieved an average occupancy of 78% in 2024, outperforming traditional hotels by 15%.
Looking Ahead: A Bright Future for California Hospitality
As we enter 2025, California’s urban hotel markets and corporate retreats are set to drive the next chapter of growth in the hospitality industry. Key highlights include:
Increasing international visitor numbers, buoyed by strategic tourism initiatives.
Rising corporate retreat bookings, emphasizing team-building and experiential elements.
Continued innovation in sustainability and technology adoption to meet evolving guest expectations.
The California hospitality sector is uniquely positioned to thrive, thanks to its diverse offerings, strategic location, and forward-thinking initiatives. For investors, operators, and developers, the opportunities in this market are vast and varied.
Closing Thoughts
California’s hospitality industry has proven its resilience and adaptability, emerging stronger from the challenges of recent years. As urban hotels and corporate retreats flourish, the state remains a beacon of innovation and opportunity in the national hospitality landscape.
At Strands Realty Group, we are dedicated to helping you navigate this exciting market. Whether you’re considering acquisitions, repositioning assets, or planning your next corporate retreat, our team is here to guide you with expert insights and tailored solutions.
Thank you for your trust and partnership. We look forward to a successful 2025 filled with growth and new opportunities for California’s hospitality sector.
Happy New Year!
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