Hotel openings are down in California, with factors outside typical supply-demand dynamics influencing that trend.
The California Development Survey 2026 Mid-Year from Atlas Hospitality Group found that during the first six months of the year, California had 21 hotels open with approximately 1,988 rooms, a year-over-year decline of 42% and 63% respectively. Conversely, both the number of hotels and hotel rooms entering the construction phase grew by 16% to 115 properties and 14,126 rooms.
However, the number for both projects and hotel rooms in the planning phase dropped by 6% to 1,180 projects and 139,274 rooms.
The largest hotel to open in California in the first half of the year was the 146-key Element by Marriott San Diego Mission Valley.
One thing to keep in mind about the significant drop in new hotel room openings is that the 1,600-key Gaylord Pacific Resort & Convention Center opened in May 2025 in Chula Vista, Atlas President Alan Reay said.
“We’re still seeing that 42% fewer hotels that opened up,” he said.
Another wrinkle to hotel development is that every hotel project his company is tracking is taking another six, nine or 12 months to complete, he said.
“I don't know if that's a combination of making any changes to plans or it's a part of tariffs and the delay in getting things or the problems with trying to find labor,” he said.
“We’re definitely seeing a spike in the delay in getting these hotels to cross the finish line.”
Excluding coastal hotel projects, which take longer due to needing California Coastal Commission approval, the development process now takes 30 to 36 months, compared to the roughly 18 months it took previously, Reay said.
“That’s what I think is dampening investors’ appetite for new construction, that almost doubling the amount of time you’re paying the carrying costs of your financing,” he said.
Developers with construction loans financed their projects years ago, and those loans are coming due now when interest rates are much higher than when they started, he added.
Given the complications associated with new build projects, adaptive reuse projects may seem a good alternative, but Reay said developers tend to prefer converting hotels to apartments. There’s the occasional review of an office building to convert to a hotel, but few of those make sense financially.
“As time goes by, we’re seeing more distressed sales of hotels at much lower prices,” he said. “That seems to be the focus of buyers and investors today. I can buy product at a big, substantial discount to replacement cost. When we have that happening in the marketplace, it just really kills any new construction.”
Cities are facing pressure from the state government to increase the availability of affordable housing, even going so far as to relax environment impact standards and overrule local restrictions on housing projects, Reay said. Where developers have faced local opposition to housing projects, they now have the state behind them.
“They’re winning every single case that I’m following where the cities might be saying our local residents are saying they don’t want affordable housing in their neighborhood, and that’s being thrown out,” he said.
The state’s emphasis on adding more affordable housing and multifamily units is causing commercial developers to focus their efforts and capital on housing because that’s where they see the money, he said.
“Multifamily is probably the No. 1 desirable product right now,” he said.
Projects that have construction financing will move forward and break down, but for those without that financing in place, developers and lenders are both likely to take a wait-and-see approach to the market, Reay said. There are more transactions taking place as big discounts to replacement cost and what the properties traded for within the last 10 years.
The vast majority of new projects tends to be in the extended-stay space, such as Residence Inns and Home2 Suites, as well as the higher-end limited-service hotels, including Hampton Inn & Suites, Hilton Garden Inn and Courtyard by Marriott.
“Those are the products that we're seeing that are at least penciling and making sense to move forward, but I think that by the end of the year, we'll see these numbers in terms of new projects going into construction continue to decline,” he said.
Hotels at the higher end of the chain scale are less likely to move forward, Reay said. Smaller luxury hotels in coastal markets such as Malibu, Laguna Beach or La Jolla are still viable, but there are certain factors at play. The investors behind projects such as these are not looking to sell as soon as they complete the construction because they are typically wealthy enough to have a longer hold strategy.
They may look at it as a more exclusive project, and having that longer-hold approach in high-end markets means the economics don’t need to make sense immediately, he said. Their financial capability means they’re less reliant on big construction loans.
“They’re looking at, ‘Hey, this might be overpriced today, but 10, 20, 30 years from now, people are going to look back and go, my God, what an incredible asset,’” he said.
On the flip side, a “regular developer” doing anything in the luxury segment in California is facing a project with a price over $1 million per key to build, he said. That will require driving high revenue and profit margins.