WESTERN SNAPSHOT, SEPTEMBER 2004

Palm Springs Hospitality Market

Hotel development in Palm Springs is focusing increasingly on the upper-end boutique market. The city is famous for its lively downtown featuring boutique shops and unique restaurants, and boutique hotels and bed & breakfasts are capitalizing on these specialties. Desert Hot Springs is a surrounding area where many “hot water/mineral spring” hotel and spas are located. The boutique and bed & breakfast inns draw clients to Idyllwild, Lake Arrowhead, 29 Palms and Borrego Springs as well.

“The spa/retreat business is also coming into Palm Springs,” says Michael Kassinger, senior advisor for Sperry Van Ness in Palm Springs. “We are receiving a significant amount of calls for hotels that can accommodate a large spa or a more intimate spa/retreat which focuses on nutrition, body/soul cleansing and just plain simple pampering of oneself.”

The scarcity of developable land around Palm Springs has had a big impact on the hospitality sector. Hotel developers have been forced to pay as much as $820,000 per acre for Indian-leased, hotel-zoned land due to the lack of available “fee” land. Much of Palm Springs is in redevelopment mode since land is so expensive. The scarcity of hotel sites is causing some cities to wear the developer hat in order to promote hotel growth and generate constant revenue through the Transient Occupancy Tax. The city of La Quinta is developing a golf course and a hotel for this reason.

The predominant trend in hospitality development involves time-share and related offerings. The new product on the market is comparable to a time-share but does not offer incremental ownership. Many of these units offer private pools and spas. Alternative lifestyle projects are also gaining in popularity.

Palm Springs’ growing attractions, including the new 100,000-square-foot Spa Resort Casino, film festivals, the White Party, annual high-end car shows and Village Fest are drawing in more renters as well as buyers. “People want to own a piece of Palm Springs and timeshare is an attractive and economical way to do that,” says Kassinger.

Projected room rates for Palm Springs hotels range from $45 to $500 a night. Within 5 years, Kassinger expects the premium rate to vault to $750 a night as Palm Springs caters to more affluent customers.

Currently, average occupancy rates for Palm Springs are holding at 58 percent year-round, with boutique hotels falling in the 70 to 85 percent range. Kassinger reports that average room revenues vary tremendously depending on the star rating and whether the property is a boutique or flag hotel. “Palm Springs is becoming better known for the amenities and ambiance of the boutique hotel. Guests are willing to pay a higher rate to enjoy the tranquility and special treatment,” says Kassinger.

The hospitality market has made a turnaround since the events of September 11, 2001. Kassinger adds that hotels are offering more attractive rates and restaurants are offering happy hour and dinner discounts to bring guests in the door. “Being the quaint village that Palm Springs is and has always been allows full-time residents as well as hotel owners and travelers to be within walking distance of just about everything — restaurants, boutique retailers, hiking and the casino.”


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