The outlook for San Diego County’s tourism industry contains some good news and some bad news.
First, the bad news. Last week, a national lodging industry surveyor reported that local hotels saw a 19 percent decline in guest room revenue for November , the steepest monthly drop of the year.
According to a preliminary report by Smith Travel Research of Tennessee, which ranks San Diego among its top 25 markets in the country, only Chicago, New York and Philadelphia did worse. In all, 23 of the top 25 posted declines. (Smith Travel does not survey Las Vegas, but sources said that Sin City’s hotels experienced a deeper decline in room revenue than San Diego.)
Still, one month does not make a year. But it could indicate a trend, said Brian Hughes, general manager of the 511-room Omni San Diego, one of four major convention hotels in downtown.
Hughes said that the Omni is experiencing a decline both in in-house meetings and in attendance at Convention Center events.
“It’s not a dramatic decline,” he said. “Some clients are exercising their contractual right to reduce their room block commitments. For instance, if a company sent nine people last year, they might send eight this year.”
Ted Kanatas, general manager of the 1,625-room, waterfront Manchester Grand Hyatt Hotel, is also seeing a softening of convention-related business, but he attributes it mostly to conventioneers opting for cheaper accommodations such as hotels in nearby Mission Valley.
Damage Control
To thwart a potentially bad outcome, the hotel’s management works to “backfill” rooms once they know they’ll be dropped from a group booking, he said, adding that every percentage point in occupancy is important considering the size of the hotel.
Steve Johnson, spokesman for the San Diego Convention Center, says that its event attendance has held steady this year.
“Until I see it, there’s really nothing to indicate to us that there’s a drop in attendance or cancellations of events,” Johnson said. “But we see that there’s a drop in corporate events at hotels.”
Now, for some good news. For 2009, the Convention Center has scheduled 118 events, including 72 conventions. Estimated attendance is 867,920 people, including 597,400 out-of-town visitors, and 771,116 nightly hotel-room stays. That’s up from the 686,029 hotel-room stays projected for 2008.
Meanwhile, PKF Hospitality Research of Atlanta said that U.S. hotels have entered the initial stage of one of the deepest and longest recessions in the history of the domestic lodging industry. Hughes predicts that the county’s hotels will engage in a rate war. If so, that would be bad news for the bottom line, but good news for consumers.
Projections In Flux
Lorin Stewart, director of the San Diego Tourism Promotion Corp., which manages funds from the city’s new tourism management district, or TMD, said it originally expected to collect $30 million in fiscal 2009, which starts in July. The TMD is a self-assessed 2 percent fee on hotel room bills. But the projection has changed.
“Right now we’re looking at $24.5 million,” he said.
However, the San Diego Convention & Visitors Bureau is guaranteed at least 50 percent of the TMD collection, which is more than the city’s $8.8 million supplement in fiscal 2008. So, that also can be construed as good news.
San Diego North Convention & Visitors Bureau, the county’s primary tourism marketing arm, is guaranteed 10 percent of the TMD collection, and organizations including the Holiday Bowl and the San Diego Film Commission have applied to receive a portion of the funds. But those sums have yet to be determined, Stewart said.
During the hotel boom of 2005 through late 2007, the county logged billions of dollars in hotel transactions and starts. Now building has come to a near standstill and anyone who wants to sell a hotel would be well-advised to wait at least a couple of years unless they’re willing to make a sacrifice, said Alan Reay, who owns the Irvine hotel brokerage, Atlas Hospitality Group.
“There’s really no good news unless you subscribe to Warren Buffett’s theory that you want to buy in a market when everyone else is fearful,” Reay said.
According to David Peckinpaugh, president and CEO of ConVis, the lodging industry has always gone through cycles.
“Anyone who’s been in this business for a while knows that there are buyer’s cycles and seller’s cycles, and we’re currently in a buyer’s cycle,” Peckinpaugh said. “The big question is: How long will it last , and where’s the bottom of the cycle? I’m hoping things will begin to turn around in the third quarter of next year.”
