Business Travelers Spur Boom for South Bay Hotels.

The South Bay has emerged as one of the strongest hotel markets in L.A. County, rivaling such destination markets as Santa Monica and Marina del Rey.

But it's business travelers, not tourists, who are pushing up hotel occupancies and room rates, and triggering the biggest hotel-building boom in nearly a decade.

"It's mid-level business travelers who are filling these rooms, or business travelers in general," said Bruce Baltin, senior vice president at PKF Consulting, a hospitality-industry research firm. "Essentially, all the (new) rooms are mid-level extended-stay, oriented primarily to the business traveler."

The South Bay, which includes aerospace-and technology-rich communities like El Segundo and Torrance, has enjoyed a strong occupancy rate of 75 to 80 percent since 1997. That's close to the 80 percent of rooms filled in Marina del Rey and Santa Monica and stronger than the 67.6 percent occupancy rate in West L.A. and 70.3 percent in downtown L.A.

The South Bay's average occupancy for 1999 is estimated to end up at 76.4 percent, down only slightly from 78.3 percent in 1998, according to PKF Consulting. Industry observers said that's impressive, considering so many new South Bay hotel rooms are coming onto the market. Specifically, the number of rooms is projected to climb to 3,011 by year end, a 10.8 percent increase from a year ago and a sharp reversal from eight years of contraction (growth of less than 0.5 percent), according to a new report from PKF.

"Supply grew 10.8 percent, and demand grew 8.0 percent, which is pretty healthy. It shows that the market is able to support the supply," Baltin said.

The demand is a result of a burgeoning economy that is far more diverse than in years past, when the South Bay drew almost exclusively from the aerospace sector and from airline crew, members.

"The South Bay economy has matured and expanded. We've had businesses moving in from West L.A. and home-grown companies growing," said Allan Mackenzie, president of Mar Ventures Inc., a real estate company focusing on the South Bay.

"There's a very good business base down there, with the port and tech companies. There's a number of different industries," added Baltin.

Another growing source of business has been out-of-town consultants flying into town to work for periods ranging from a few days to several months at a time, Baltin and Mackenzie said.

The result: the South Bay's percentage increase in hotel rooms in 1999 is the second largest in L.A. County, second only to Valencia. With 970 rooms by year-end, Valencia will have 17.1 percent more rooms than a year ago, PKF reports.

As for the South Bay's hotel building boom, it consists primarily of extended-stay facilities.

"There has not been a great deal of choice in the more-limited accommodations," Mackenzie said, "You either had a full-service hotel or a class-B type (like a motel). Now you see that more of the class-A, limited-service hotels have come into the market."

The format is geared to providing a sort of home away from home.

"They're not going to have the variety of services like a full-service hotel, but your suites, your individual rooms, are going to be more homelike," explained Bob Dictor, Marriott manager for the Torrance area. Room service, restaurants, bellhop assistance and conference facilities will likely be limited at extended-stay hotels, he said.

Marriott International Inc. is building the 120-room Spring Hill Suites hotel in Hawthorne, just blocks away from the Manhattan Beach Marriott. In the past year or so, a 150-room Homestead Village opened in El Segundo and Extended Stay America properties opened in Huntington Beach, Gardena, and Torrance, all geared toward long-term business travelers. Other new hotels are planned for El Segundo and Redondo Beach.

"It probably is the largest resurgence of new rooms into the supply in a decade," Dictor said.

While the South Bay's inventory is expected to grow even more in 2000, to 3,156 rooms, the average nightly room rate is also expected to keep increasing. A nightly stay in 1997 cost $79, but the price jumped to $89 in 1998, with projections of $92 this year and $94 in 2000, according to PKF.

Mackenzie said he expects the current building boom will last another two years, before it slows down.

"One of the natural constrictions will be a shortage of good sites," he said. "We're running out of viable sites here, and some of the sites that are available are very, very expensive."

                          South Bay Hotel Market
                   Room rates rising amidbuilding boom.
         No. of           Avg. daily
Year     rooms  Occupancy room rate
1987     1,569    71.7%      $70
1988     1,920    70.1        70
1989     2,328    66.6        71
1990     2,713    59.8        71
1991     2,994    63.8        72
1992     2,994    65.2        70
1993     2,994    70.1        68
1994     2,706    75.9        71
1995     2,706    83.7        76
1996     2,706    74.7        77
1997     2,706    80.3        79
1998     2,718    78.3        89
1999 (E) 3,011    76.4        92
Source: PKF Consulting