By Jenny Lee
Two unusual events have occurred recently that have had a short term impact on the LA hotel market: the Porter Ranch Gas Leak and the new Harry Potter World at Universal Studios. The article focusing on the effect of the Porter Ranch Gas leak was released in July. This article will focus on the new Harry Potter World at Universal Studios, the next boon to Valley hoteliers.
As mentioned in last month’s article, these events are of the same magnitude as hosting a Democratic or Republican national convention, and should be taken into account when using 2016 YTD data in forecasts, particularly for the San Fernando Valley and adjacent communities.
The Harry Potter Effect
On April 7, 2016 Universal Studios opened the $500-million attraction: Wizarding World of Harry Potter.
When the Orlando Park opened its Wizarding World attraction in June 2010, the Park’s attendance jumped 30% that year. With the added attraction of Harry Potter, the entire attractions industry in Orlando thrived as a result of additional visitors, particularly from international markets.
Universal Orlando has been able to preserve and build on the increase, attracting 9.58 million visitors in 2015, an attendance increase of 16% since the opening of the second Wizarding World in June 2014, themed to Diagon Alley. Also note that Universal Studios Japan experienced an attendance increase of nearly 17% after its opening of the Wizarding World in 2014.
There are rumors that Universal Hollywood is also planning to add Diagon Alley, as they did in Orlando—which would further help boost attendance. An industry trade magazine estimated that Universal Studios hosted a record 7.1 million visitors in 2015 and 6.8 million visitors in 2014, up 11% from 2013. In addition to post-recessionary recovery, the Universal Studios Park is benefiting from an aggressive program of modernization launched by parent company Comcast Corp. Though Universal Studios Hollywood’s annual attendance is less than half of Disneyland’s, it is growing at a faster pace—attendance grew by a cumulative 41% from 2010 to 2015 at Universal Hollywood vs 14% at Disneyland.
Over the past four years, Universal has also added:
2012 Transformers: The Ride 3D
2014 Despicable Me: Minion Mayhem, and Super Silly Fun Land
2015 Fast & Furious: Supercharged
The Harry Potter attraction is not the only one that Universal launched this year. This summer on July 4th, an attraction based on the AMC show The Walking Dead opened to the public. We believe that with the continual improvements, Harry Potter will cement a “New Normal” in increased attendance.
The opening of Harry Potter in Orlando coincided with the recovery such that it is difficult to isolate its effect. In June 2010 opening month the metro area increased occupancy 4.2% from the prior year and ADR rose 2.1%. This was the first year-over-year improvement for the local market since June 2008. The “Potter effect” was most apparent in the International Drive area, and most apparent in ADR: occupancy grew 3.9% but ADR grew by 8%.
Disneyland has started construction of a 14-acre expansion based on the “Star Wars” films, estimated to cost about $1 billion. A completion date has not been released but the opening of this new attraction may draw more people to visit both, Disneyland and Universal Studios Hollywood, while they are in town. It remains to be seen whether the second Wizarding World will have the same effect as the first in Orlando but we believe that the outlook is positive.
Los Angeles Hotel Market Impacts
The Wizarding World of Harry Potter opened on April 7th, while families that were displaced by the Porter Ranch Gas Leak were still being accommodated in hotels. The enhanced lodging performance peaked towards the end of May to June, and began to ebb after the May 31st cut-off date for the Porter Ranch housing reimbursements.
Unlike Orlando, the affected markets were already at high occupancy levels, in the low- to mid-80% range. (Metropolitan Orlando was operating in the high 60% occupancy range before the first Potter attraction opened.) The most affected markets include: Hollywood/West Hollywood /Beverly Hills; LA County North; and Pasadena/Glendale/Burbank. These markets have been feeling the effect mainly in higher ADRs.
In order to establish a baseline performance, we combined the five least-affected markets: East LA, Long Beach, South Bay, Southeast and Airport, and Santa Monica/Marina Del Rey.
The base line indicates that for the week starting May 29 (just as the Porter Ranch families were moving out), the aggregated sub-markets have shown only a 0.5 percentage point increase in occupancy. Markets in or near the Valley have generally shown levels above that, as presented below:
Note that the only markets that had an average above the combined least-affected markets were the most obvious Harry Potter effect markets. The Hollywood/Beverly Hills/Westside submarket showed the greatest occupancy impact, while Hollywood is only a small ratio of the West side market. Analysis of weekly data showed that growth in the rest of the county is slowing. The following tables illustrate graphically how the lodging sub-markets were affected by the opening of the new attraction:
Although the Harry Potter effect is evident from April to June 2016, the greater effect was from Porter Ranch, which occurred during months with excess capacity. Additionally, when spending their own money, hotel guests visiting Harry Potter World are less prone to pay rack rates (compared to Porter Ranch residents who were reimbursed).
Regardless, 2016 will go down in the record books as the best year ever for the hotel sub-markets that border the San Fernando Valley, and may produce compression benefits for the entire county.
