If the country falls into a serious recession resulting from the real estate downturn, which was triggered by risky home loans to the less creditworthy, all bets on the tourism industry’s well-being, locally and nationally, would be off. But for now, they keep coming.
One hotelier who has plans to continue expanding his company says the current economic climate offers advantages not seen in the prior homebuilding boom.
“The idea of a recession is an interesting one and like any other prognostication, there are people who say things will go to the right and others who say they will go to the left,” said Sam Hardage, chief executive officer of San Diego-based Woodfin Suites Hotels. “I’m not convinced that the nation is going to go into a recession. But I do think that some sectors of the economy are in serious trouble now.”
Hardage’s company has three hotel proposals for developable properties near San Diego Bay , two hotels proposed for Lane Field in downtown and one on Harbor Island that would contain a time share component.
While lending will tighten and return to “old-fashioned standards of underwriting and bank relationships,” he said he thinks that’s healthy. But the slowdown in homebuilding that has resulted from the subprime lending fallout is likely to make it easier to build hotels.
“Actually, if you think about it, this is an excellent time to build because construction prices are going down,” he said. “I’d much prefer to build when prices go down than up.
“So when we open, we could be in sync with the economy cycling upward.”
Hardage says his company hopes to break ground midyear on the two Lane Field hotels , the 525-room InterContinental and 275-room Vivara , its new brand.
More Hotel Rooms
In 2006, the county tallied 54,100 hotel rooms. In 2007, the total grew by about 600, and by the end of 2008, it’s expected to climb to 57,688, including the 1,090-room Hilton San Diego Convention Center Hotel downtown.
Though the San Diego Convention & Visitors Bureau predicts that occupancy overall will decline by 2.5 percent in 2008, demand is stable because the visitor count is expected to increase by 1.4 percent. There are simply more rooms to fill.
Alan Reay, who heads the Irvine-based brokerage Atlas Hospitality Group, which regularly publishes reports on the state’s hotel starts and sales, predicts that the buying frenzy for hotels, which started with major properties in San Diego in 2005 and moved north, will cool off.
“I think sales will slow down and we’ll see 10 percent fewer transactions,” he said, referring to the state as a whole.
Bob Rauch, chairman of the San Diego County Hotel-Motel Association and a hotel owner, has had the same mantra , “Times will be great through 2008” , for the past couple of years and he hasn’t changed it, despite the real estate downturn.
“I think the subprime lending market has certainly caused some uncertainty and it’s dragging the economy down, but I don’t see a recession until at least 2009,” he said. “It’s an election year. You will not see a recession in an election year. It doesn’t happen.”
According to analysts at Tennessee-based Smith Travel Research, which tracks the U.S. lodging industry, room occupancy nationwide is expected to be flat in 2008 at 63.5 percent.
“The reason is that supply and demand will be in equilibrium,” said spokesman Jan Freitag.
If a recession were to occur, there might be fallout in hotel construction starts, but it wouldn’t be felt until 2009. Demand would be the only caveat. However, that has two components, leisure travelers and business travelers, and while leisure would likely remain steady, businesses might cut their travel spending budgets, Freitag says.
Visitor Numbers Up
In its Destination Marketing Plan for 2008, ConVis anticipates that the county will see 32.5 million visitors, up 1.4 percent from 32 million in 2007.
Since the forecast for direct spending is up by a higher percentage , 4.5 percent , to reach $8.2 billion in 2008, visitors are expected to spend more dollars while they’re here.
It follows then that ConVis has also predicted higher hotel room rates. According to the bureau’s estimates, room rates averaged $134.63 nightly in 2007 and the expectation is that they will go up to an average of $141.36 in 2008.
Attractions also are expected to see a higher turnout , comparing total attendance of 13.7 million in 2007 with 13.9 million for 2008. There’s no forecast on what attractions will be charging, but their admission prices for both children and adults have traditionally increased annually.
Although about a dozen attractions report their attendance figures to ConVis, including SeaWorld San Diego, Legoland California, the San Diego Zoo and San Diego Wild Animal Park, as well as some museums and Old Town State Park, the bureau does not release those numbers, as some are proprietary, says spokesman Sal Giametta.
Whether this year’s crop of visitors has fatter wallets than last year’s or they’re simply more willing to part with a buck is uncertain. Yet indications are they might also be a bit more cultured.
Attendance at arts venues and museums is anticipated to increase from 2.1 million in 2007 to 2.2 million in 2008.