The decline comes as a surprise because the industry in California has been gaining strength since a sharp post-9/11 drop-off.
The growth of California's hotel business is expected to slow dramatically over the next year as developers scale back their expansion plans.
The number of hotel rooms in the planning stages dropped more than 38% in Southern California in the first half of this year, compared with the same year-earlier period, according to a survey by Atlas Hospitality Group.
In Northern California the number of planned rooms was down 30%
The decline in projects came as a surprise because the state's hotel industry has been firming up after weak performances after the Sept. 11 terrorist attacks, said Alan Reay, president of Costa Mesa-based Atlas.
California's booming housing and retail markets were a key factor in the planning slowdown. Several developers told Atlas that they changed the planned use of their hotel sites to condos or shopping centers, which can bring a bigger return.
Other developers ran into problems getting local officials to approve the size of the hotel projects, or had a tougher time getting financing for their projects than they had anticipated.
Lenders backed most proposals for hotels operated by major chains in densely populated areas, Reay said, "but when you are in an outlying area and don't have a good brand it is very tough to find the financing."
The reduction of future competition is good news for owners of existing hotels, who can expect higher long-term profitability, Reay said.
Los Angeles County saw a 31% reduction in the number of rooms in the planning stages compared with the first half of 2003. It did, however, see a 35% increase in the number of new rooms that opened, with an additional 334 in four hotels. The largest newcomer was the 175-room, Renaissance-themed Ayres Hotel Manhattan Beach.
"There is a lot of growth in the South Bay and a good future with the aerospace industry," said Douglas Ayres, a vice president at the Costa Mesa-based Ayres hotel chain. "That area and LAX needed a high-end hotel."
Proposed hotel rooms in Orange County fell 47.5% to 2,559 rooms. The number of rooms that opened in the first half of the year fell 74%, to 462 rooms in four hotels. The 156-room Courtyard by Marriott in Foothill Ranch was the largest.
San Diego County saw a 33% decline in rooms planned to 7,445 and a 56% decrease in the number of new rooms opened to 790 rooms in three hotels. The largest new hotel was the 512-room Omni San Diego Hotel.
Planned rooms in Riverside County dropped 64.6% to 1,318 and San Bernardino County fell 10.7% to 1,112. Ventura County fell almost 50% to 596.