PALM SPRINGS, CA—Part of the Coachella Valley market, Palm Springs, known for its culture, boutique properties and sunshine, is holding its own, despite challenging market conditions.
“The Coachella Valley appeals to an essential base of business, the baby boomers, given their desire to retire in a place with good weather, a high quality of life and many recreational opportunities,” said Brandon Feighner, senior director of valuation and advisory services, CBRE Hotels. “Yet, over the past few years, millennials have increasingly looked to the Coachella Valley as a weekend getaway for its vibrant music festival scene, its summer pool parties and its desert characteristics.”
For leisure travelers, the Coachella Valley is an attractive destination spot. “These trends are becoming more evident as development in the Coachella Valley signals that the region is quickly establishing itself, once again, as a premier leisure destination for Southern Californians, especially as new, higher-quality hotels open,” he said. “Continued efforts by Coachella Valley communities and private companies, such as Goldenvoice and BNP Paribas, continue to attract both domestic and foreign visitors that have heightened the position and awareness of the entire Coachella Valley.”
Economically, the tourism, healthcare, agriculture, retail and housing industries are stimulating the Valley’s growth. “With improving economic conditions, combined with new attractions and events in the Coachella Valley, as well as hundreds of millions of dollars of hotel improvements in recent years, prospects for the tourism industry appear bright,” he said.
“The Coachella Valley’s tourism industry continues an already-established upward trend in 2017, bringing in roughly 13.6 million visitors—a 5.5% increase over two years—who spent more than $5.5 billion valley-wide, according to an economic impact study released in May,” said Mary Jo Ginther, director of Palm Springs Tourism.
Despite the growth in economic activity in the region as a whole, the lodging industry didn’t reap the rewards in Q1 2019; however, the outlook ahead isn’t expected to be as grim.
“Year to date, through the first quarter of 2019, RevPAR in Coachella Valley is down slightly (2.4%), as compared to the prior period in 2018, although this does not necessarily portend a trend for the rest of the year,” Feighner said.
Occupancy during the same time period decreased by 2.4%, dropping from 77.19% to 75.36%, according to data released by CBRE; ADR practically remained stagnant year-over-year, decreasing from $223.70 to $223.65.
“The region was not immune to challenges that the hotel industry as a whole experienced during the first quarter, including the government shutdown, winter storms, less-than-expected tax returns and the Easter holiday shift/extended spring breaks into April,” he said. “In particular, weather and the government shutdown likely impacted the area to a greater degree, as visitors to Joshua Tree National Park would have been negatively affected. On the weather-related front, Palm Springs, specifically, saw 100 consecutive days where temperatures didn’t reach 80 degrees, making it a record for the city.”
Of course, being the largest city in Riverside County by land area, Palm Springs is integral to Coachella Valley’s economic success. “The primary challenges facing the Palm Springs market, especially as positioning it as a premier Southwest leisure and group destination, are airlift and real or perceived seasonality,” Feighner said. “As compared to regional competitors like Scottsdale, air travel into Palm Springs is much more limited.”
Despite all the market’s challenges, the Palm Springs market fared well in Q1 2019. Properties in Q1 2019 saw an ADR of $174.27, a year-over-year increase of 3.4%, according to CBRE. During the same time frame, RevPAR hit $132.26, a year-over-year increase of 3.3%, and occupancy decreased slightly to 75.90%, a year-over-year decrease of 0.1%.
In addition to some openings earlier this year, development in the market is continuing. “Palm Springs has seen a flurry of hotel development,” said Ginther, pointing to the construction of the four-story Andaz Palm Springs and Dream Palm Springs.
“The natural and vibrant setting is a huge draw, but people come to Palm Springs for the fabulous weather,” said Michael Green, owner of the Triangle Inn Palm Springs, executive director of the Palm Springs Cultural Center and chair of Palm Springs Preferred Small Hotels. “In fact, the weather is the main attraction for six out of 10 visitors. It’s pleasantly warm and sunny in the winter and, for those who like the heat, the dryness makes it a welcome vacation alternative to humid climates found throughout most of the rest of the country in the summer months.”
Boutique properties have been somewhat of a staple in the Palm Springs market for decades. “Small boutique hotels and inns have always been an important part of the tourism lodging industry,” Green said. “They saw a marked increase in popularity in the 1980s, and that trend has continued to the present day. In fact, an entire real estate segment and support structure (suppliers, products and services) has grown up around these properties.”
There’s also a significant concentration of historical and mid-century hotels in the area. “These properties range from individual inns, villas and resorts, to quaint and quietly secluded bungalows, to hip and modern poolside hangouts,” he said.
Currently, there are 77 boutique properties in the market, according to data provided by Palm Springs Preferred Small Hotels. “Given its relatively small geographic footprint, Palm Springs has one of the highest concentrations of boutique hotel properties in the country,” Green said.
These properties are also seeing a lot of action. Among other moves, the Movie Colony Hotel just reopened after a two-year renovation; two new hotels opened earlier this year—The Weekend Palm Springs and Tuscany Manor; Neil Mehta recently purchased The Desert Riviera and Hotel California; and there are currently two boutique hotel properties for sale: the Amado and the Rendezvous.
Boutique hotels in the market are facing many of the same challenges as elsewhere. “Small, independent boutique hotels are often labors of love and the regulatory pressures (and accompanying costs) can be overwhelming for some owners,” he said. “Most of our hoteliers are Palm Springs locals who have dedicated themselves to building a community, and they help each other out in ways large and small.” These properties are also up against home rental platforms.
“Looking forward, there appears to be no lessening of the interest in small boutique hotels and inns. Consumers continue to search for unique, personalized travel options, custom features and amenities, and venues targeting specific interest groups,” he said. “Price, which can be sensitive to some consumers, tends to be less important to the people who prefer small, boutique hotels, so these lodging alternatives tend to be less subject to shifts in the economy. Based on what we are seeing locally and in national trends, the future looks bright for these often-hidden gems.” HB