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Demand for Rooms, Upgrades Ramping Hotel Rates Up Steadily

Like a retailer at Christmastime, the Willis Bros. School of Surfing depends on the summer’s influx of business to make its year.

“In a three-month time period this summer we will do 80 percent to 85 percent of our business,” said Milt Willis, who owns the Del Mar firm with his identical twin brother, Mike. “It’s our boom season and we couldn’t survive without it.”

Neither could the county’s third-largest industry, tourism, which drew 32 million out-of-town visitors who shelled out $7.7 billion to stay in local hotels, visit attractions, dine in restaurants, party in clubs and bars, shop and gas up their cars in 2006, according to the San Diego Convention & Visitors Bureau. Some also spent $150 an hour for a private surfing lesson with one of the Willis brothers.

By all indications, the high tourism season, which kicks into gear Memorial Day weekend and ends Labor Day weekend, should be better than last, and the hotel industry should end the year on a high note.

According to Smith Travel Research, a Tennessee-based analyst that tracks the lodging industry nationwide, hotel owners are expected to continue raising their average daily rates as demand exceeds the supply of guest rooms available in most of the top destinations.

“There’s a demand imbalance in most markets,” said Jan Freitag, a spokesman for Smith Travel. “It’s easing in certain markets. But what we’ve seen is that more hotels are being sold than are being built.

“While building is picking up, the impact probably won’t be seen before the end of 2007 and through 2008.”

San Diego is no exception. Many major properties have sold within the last couple of years. Meanwhile, a host of those also underwent improvements and upgrades that will enable their owners to push room rates up.

For the 28 days ending May 5 , the latest report available from Smith Travel , the county’s hotels were operating at 73.3 percent occupancy, an increase of 2.5 percent from the like year-ago period.

On average, room rates stood at $139 a night, up 10.3 percent, while the amount of money hotels took in from the rooms, known as revenue per available rooms, averaged $102 , a hike of 13 percent from the same time frame a year ago.

In the first quarter, which is typically a slow tourism period, occupancy at the county’s lodges was 70.5 percent, down 2.4 percent from the first quarter of 2006. However, the average daily rate was up 6.3 percent to $135.


Tourists Are Demanding

According to Bob Rauch, a professor at San Diego State University’s School of Hospitality and Tourism Management, the county ended 2006 with an inventory of 54,000 hotel rooms.

Because 2,000 new rooms are expected to be added this year, the average overall occupancy rate is likely to flatten in 2007, he said.

“Just because the occupancy percentage stays the same, that doesn’t mean the market is off or that demand is down. It just means supply is up,” he stressed. “I think that demand will be up slightly.

“So, what I’m saying is that we will still have a great year because average rates are growing at a rate faster than inflation, which is forecast to increase 2 percent this year and 3 percent in 2008.”

Rauch is co-owner of the Homewood Suites by Hilton San Diego-Del Mar. The Hilton Garden Inn that he has under construction next door will add 80 rooms to the inventory.

Among other properties scheduled for 2007 ribbon cuttings are the 380-room Hard Rock Hotel downtown, the 260-room Grand Del Mar, the 150-room Homewood Suites and 120-room Marriott Courtyard, both in Point Loma. The 160-room Ivy opened in downtown San Diego this month.

The way Rauch sees it, local innkeepers will be able to increase their room rates by 5 percent or more this year compared with 2006.

Although gas prices throughout the county appear to be heading north to $4 a gallon, Rauch doesn’t think it will deter motorists from traveling this way since fueling up would still represent a small part of their vacation budgets.

However, he said it’s likely that hoteliers would respond with some type of discount on rates, such as a complimentary gas card.


Attractions Attract

Carl Winston, who heads SDSU’s tourism management school, said that he expects the county’s attractions, including SeaWorld San Diego, Legoland California and the San Diego Zoo, to fare better this year than last. He also predicted that the Dead Sea Scrolls, which will be on display at the San Diego Natural History Museum for six months beginning June 29, will draw more than the half-million visitors that museum officials are counting on.

“The important thing is that San Diego’s offerings are diverse,” Winston added. “People don’t come here for just one attraction.

“They come because dad likes golf and mom likes tennis and the kids like the zoo and the beach. We have lots of things to do, unlike Anaheim, which just has Disneyland. San Diego’s offerings keep getting better and better and they continue to generate good news nationally.”

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