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Friday, Nov 25, 2022
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Tourism Recovery Continues

HOSPITALITY: 2023 Forecast ‘Cautiously Bullish’

Hotels in San Diego County continue to recover post-COVID − and because of the region’s diversity, the local lodging industry will continue to see an uptick into the new year.

Fred Tayco
Executive Director
San Diego County Lodging Association

The update comes from San Diego County Lodging Association’s 2023 Hotel Economic Forecast, released earlier this month.

The report also cautions that while hotel leaders in the region remain a little guarded, there is an overall feeling of optimism as business and convention travelers are choosing Southern California over other popular destinations.

The forecast sees occupancy in 2023 ticking up by two to three points. “We are recovering, but we’re not recovered yet,’’ said Fred Tayco, executive director of the San Diego County Lodging Association. “We’re cautiously bullish that business and convention travelers will make San Diego County their preferred destination in 2023, just like leisure travelers did in the second half of 2021 and throughout 2022.”

Steady Recovery

Tayco says that 2022 has been a year of steady recovery for the hotel industry, and that hospitality and tourism together have benefitted from pent-up demand in both leisure and in-person business travel throughout the year.

Robert Rauch
President and CEO
RAR Hospitality
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The SDCLA advocates on behalf of hotel and motel owners and operators representing about 20,000 rooms around the county. Established in 1980, it is also the leading resource for the region’s more than 560 hotels, motels and boutique inns that employ nearly 27,000 people.

The group partnered with the private nonprofit San Diego Tourism Authority and RAR Hospitality, led by its president and CEO Robert A. Rauch, to produce the 2023 Hotel Economic Forecast. SDCLA, SDTA and RAR unveiled the 2023 Hotel Economic Forecast on Nov. 10 at a luncheon at the Handlery Hotel in Mission Valley.

“San Diego’s attractiveness for travelers in 2023 will be its diversity – many places to stay, many places to go – that meet any budget,” Rauch said. “There aren’t a lot of other destination places that can say that.”

Among data collected by Rauch and his team about future expectations for San Diego hotels include a forecasted 9.8% increase in business and convention travel over 2022 − but still 10% below 2019 − and that travelers will continue to choose San Diego over other areas in California, particularly those regions slower to re-open because of pandemic-related concerns.

The report says that leisure travel appears likely to decrease slightly by 0.8% from 2022’s rebound spike but still be 3% above 2019. The report related the change to financial concerns, rising borrowing costs, a looming possible recession and increased competitive pressures from other destinations.

RAR reported that while there likely will be fewer overall guests compared to pre-pandemic number, guests are likely to stay longer.

Staffing to Stabilize

On the job side, RAR said that staffing should stabilize as hotels hire and train new workers to match occupancy demands − and adjust to increased labor and supply costs.

Nate Kelley
Director of Research
San Diego Tourism Authority

“Next year may provide a period of transition for San Diego hotels as they adjust to new travel patterns and bring on new employees,’’ said Nate Kelley, director of research for the San Diego Tourism Authority, and an author of SDCLA’s 2023 Economic Forecast.

Kelley said that inflation has consumers on edge and that rising prices have pushed shoppers to rely on credit cards and savings to make ends meet.

“U.S. consumer sentiment has a bearing on the San Diego lodging market because San Diego is a national and international market,” Kelley said.

In a presentation shared with those at the luncheon, Kelley said that with COVID-19 largely entering the endemic phase, the focus has shifted toward inflation and the economy and that “unprecedented action by the Fed to combat inflation in recent months has led to expectations of a mild recession in the first half of 2023, which may cause a setback to the group recovery.”

He said that while demand for business and group travel “is assumed to increase in 2023,” leisure travel is expected to be lower than in 2022.

Downside Risk

Kelley said that the fact that the saving rate has fallen below-trend in the past several months after hitting record highs during the pandemic “coupled with the sharp rise in credit card balances, to me, is likely the single biggest downside risk to local tourism in 2023.”

“If consumers pull back their spending in any serious way as their windfalls shrink, then travel is almost certainly to feel at least some of it,” he said.

Currently, however, hotel performance has been resilient, Kelley said, nearly matching 2019 levels for room night demand and surpassing 2019 levels for average daily rates in 2022.

He said that from January through September, occupancy in San Diego was second highest in the nation.

RAR reported that a strong lodging demand in 2023 will support pricing, but that most occupancy gains will be in the group and corporate market, also noting that short-term rentals are doing well, including Airbnb and VRBO.

RAR’s forecast noted the Apartments by Marriott Bonvoy brand, announced by Marriott International, Inc. on Nov. 9, is a way for the company to seize upon growing consumer interest of so-called ‘bleisure’ travel – the blending of work and leisure travel.

Tayco said that he has read in reports and in surveys that people have “reprioritized” travel, that it has become increasingly important for people to get out and do “the things they were denied,” and that some people are traveling twice as much as they ever had before, making up for time lost because of not being able to travel during the pandemic.

“People are appreciating travel a lot more than they have in the past. They never thought that something could be taken away from them,” he said. “We want to click our heels and believe. We have to look at the numbers. We see everything that San Diego has to offer, and the pent-up demand to travel. We are well positioned to meet that travel demand.”

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