Occupancy Rates Declined in ‘90, Survey Reports : Hotels: Irvine accounting firm said its rosy predictions were thrown off by the recession and Mideast crisis.
It was supposed to have been the year when demand caught up with supply, bringing comfort and improved profits to hotel operators in overbuilt Orange County.
Instead, 1990 brought declining occupancy and room rates that inched up slower than inflation, according to a survey of 60 hotels by the accounting firm Pannell Kerr Forster in Irvine.
Average occupancy at the hotels was down 2.3% in 1990 to 66.1%, while average room rates rose 2.3% to $69.98 a day. Together, that meant overall revenue from rooms was down 0.6%.
At the start of 1990, Pannell Kerr Forster had issued a relatively rosy forecast for the county’s hotels, basing predictions on the John Wayne Airport’s expansion, that few new hotels were being built and that overnight stays generally increase every year. But the recession and the crisis in the Middle East threw off those predictions, said Rick Schwartz, manager of management advisory services for the firm.
He said figures for January will show that the drop in local occupancy rates is “definitely not as dramatic as in other parts of the country.” Pannell Kerr’s New York office is predicting a 50% drop in international tourist travel there, largely due to increased fears of terrorism on the East Coast and in Europe.
Gary Wescombe, a partner with the accounting firm Kenneth Leventhal & Co. in Newport Beach, recently predicted that more than 20 county hotels could face foreclosure in the next two years because of financial problems. He did not identify the hotels.
He said the hotels most likely to fail were those built in the early- to mid-1980s, whose owners have loans coming due as the economy is mired in recession and credit is tight, Wescombe said.
He advises hotel owners and financiers to try to renegotiate the terms of their credit agreements now rather than risk foreclosure later.
He said he doesn’t think 1991 will be the year hotels here turn the corner to profitability. “A lot depends on what happens with the war and the credit crunch,” he said. “The good news is there probably won’t be any new hotels constructed for a couple of years.”
Schwartz said he didn’t want to comment on Wescombe’s prediction. “I personally wouldn’t pass judgment on what’s going to take place next year,” he said.
One finding that stands out from Schwartz’s report is that Anaheim-area hotels had a decline in occupancy of only 1.6%, while the airport area, South County and North County each showed declines of about 3.2%.
Schwartz said corporate travelers, many of whom come to attend events at the Anaheim Convention Center, have helped stabilize occupancy rates in that area.
The Anaheim area had the highest overall occupancy rates in the county, at 70.2% in 1990. That compares to a 62.5% rate in the airport area, 60.8% in South County and 57.9% in North County.
Hotels generally must have occupancy rates in the high 60s to low 70s to make a profit, industry experts say.
To get through the uncertainty of the coming year, Schwartz advises hotels against cutting room prices, which could touch off a price war that is harmful to all hoteliers in the area. Also, he advises hoteliers to keep in touch with corporate clients, confirm group bookings and keep service levels as high as possible.
“The key is to make sure their existing base of business is there and not leaving,” he said.
O.C. Hotel Market Occupancy rates at Orange County hotels slipped again in 1990, from almost 68% to 66%,according to an annual study by Pannell Kerr Forster. Here are figures compiled by PannellKerr Forster, an Irvine consulting firm, from a survey of 60 Orange County hotels. Occupancy Rates ‘90: 66.1% Room Rates ‘90: $69.98 Occupancy Rate and Room Rates by Region Percent occupancy and room rates for 1990 Anaheim Occupancy: 70.2% Room Rate: $67.96 North County Occupancy: 57.9% Room Rate: $50.87 Newport Beach/ Airport Occupancy: 62.5% Room Rate: $76.39 South County Occupancy: 60.8% Room Rate: $87.93
