California Hotel Openings Rise in 2025, but New Development Pipeline Shrinks

California experienced a notable increase in hotel openings in 2025, but industry reports indicate a significant slowdown in new hotel development projects due to rising construction costs and other barriers, suggesting the trend of increased openings may not continue.

Increase in Hotel Openings Driven by Past Projects

California saw 50 new hotels with 7,100 rooms open in 2025, representing a 43% increase compared to 2024, according to Atlas Hospitality Group’s California Development Survey 2025 Year End. However, this increase largely reflects projects that were already near completion in previous years rather than a surge in new developments. The mid-year survey showed 36 hotels opened in the first half of 2025, a 64% year-over-year increase, with 5,369 rooms—an increase of 135% compared to the prior year.

A significant portion of this growth was due to the opening of the 1,600-room Gaylord Pacific Resort & Convention Center in Chula Vista in May. Excluding this project, 35 hotels with 3,769 rooms opened in the first half, compared with 15 hotels with 3,331 rooms in the second half. Atlas Hospitality Group President Alan Reay noted that the scale of the Gaylord project skewed the overall numbers, as it is comparable to approximately ten typical hotels.

Declining Hotel Development Pipeline

Despite the increase in openings, the pipeline for new hotel projects in California is contracting. By the end of 2025, 96 hotels were under construction, with 11,121 rooms, and 1,120 hotels in the planning phase, with 140,526 rooms. This is a decrease from the end of 2024, when 124 hotels with 16,468 rooms were under construction and 1,186 hotels with 153,360 rooms were in planning. The data indicate a slowdown in future supply, as fewer projects progress from planning to construction.

Rising Costs and Barriers to Entry

The report highlights persistent barriers to new hotel development in California, including increased costs for construction materials, furniture, fixtures, and equipment, partly due to tariffs. Labor costs have also risen, exacerbated by a reduction in available workers following U.S. Immigration and Customs Enforcement actions in the state. According to Reay, construction costs for a standard three-story hotel with 120 to 130 rooms now range from $250,000 to $300,000 per room. These higher expenses make new developments less attractive compared to purchasing existing hotels at a discount to replacement cost.

Financing and Market Outlook

While the Federal Reserve reduced the federal funds rate by 75 basis points in 2025, most hotel loans are linked to longer-term Treasury notes rather than the prime rate. Construction loans are typically short-term and may be based on the prime rate, but long-term financing rates remain in the low 6% range. This is an improvement over previous years, but not enough to offset the high construction costs. Additionally, hotel operational costs are rising faster than revenue per available room, making new projects less financially viable.

Preference for Buying Over Building

Given these economic conditions, hotel investors are increasingly opting to purchase existing properties rather than undertake new construction. Even after accounting for $100,000 to $150,000 in renovation costs per room, buying an existing hotel remains less expensive and allows for quicker market entry than building new. The combination of high construction costs and moderate financing rates is expected to slow new hotel development in California for at least the next 12 to 24 months.

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