San Diego County’s key hotel room metrics generally tracked ahead of U.S. numbers in the first six months of 2016, though growth has slowed both locally and nationally compared with the same point of 2015. Year-over-year change is in parentheses.
San Diego County
Occupancy – 76.8 percent (Down 0.6 percent)
Average daily rate – $150.25 (Up 2.2 percent)
Revenue per available room – $115.44 (Up 1.5 percent)
Room supply – 11.1 million (Up 1.4 percent)
Rooms sold – 8.5 million (Up 0.8 percent)
Total revenue – $1.28 billion (Up 3 percent)
Occupancy – 65.1 percent (Up 0.1 percent)
Average daily rate – $122.94 (Up 3.1 percent)
Revenue per available room – $79.98 (Up 3.1 percent)
Room supply – 906.8 million (Up 1.5 percent)
Rooms sold – 589.9 million (Up 1.6 percent)
Total revenue — $72.5 billion (Up 4.7 percent)
Developers of Pendry San Diego, a new $100 million luxury hotel set to open this November in the Gaslamp Quarter, say they’re not worried that other posh competitors have also set their sights on downtown San Diego.
Co-developers Alan Fuerstman, CEO of Irvine-headquartered Montage Hotels & Resorts, and Robert Green of Encinitas maintain their 317-room hotel — with several public venues including an upscale, seafood-oriented restaurant and bar called Lionfish — will draw a steady crowd of visitors and locals to the vibrant Gaslamp neighborhood.
“We think there’s a big market out there for projects where design meets service meets hospitality,” said Alan’s son Michael Fuerstman, co-founder of Montage Hotels and creative director for the new Pendry brand, during a recent preview for the hotel.
Operators will eventually be up against a 400-room luxury InterContinental Hotel, whose developers recently started construction at the downtown waterfront site of the former Lane Field ballpark; and a 153-room Ritz-Carlton being planned for a mixed-use development in the works in nearby East Village, just a few blocks from the new Pendry.
Not Just Luxury Brands
However it plays out, the potential battle of the luxury brands is just one facet of a countywide boom in new hotel development, spurred in part by continued post-recession improvement in the local and national tourism economy. Many are luxury-oriented, especially near the downtown waterfront, but projects spanning multiple price ranges are in development.
In a recent mid-year report on California hotel development trends, brokerage and consulting firm Atlas Hospitality Group noted that San Diego County added six completed hotels with 1,017 rooms in the first six months of 2016. The largest was a dual-branded, 400-room Marriott hotel (a connected SpringHill Suites and Residence Inn) that opened in the first phase of the Lane Field development.
There were four hotels with 957 rooms under construction countywide at the end of June, the largest being the 400-room InterContinental being built in the second phase of the Lane Field project. San Diego County also has 52 other hotels with 10,439 rooms in various pre-construction planning stages.
Atlas President Alan Reay said California generally is in the midst of a hotel building boom, spurred in part by healthy increases in revenue per available room (RevPAR) over the past five years, combined with record sales prices for existing properties. Those elements “created a perfect climate for new construction.”
“The big question on everyone’s mind is: Are we overbuilding?” Reay said. “In many markets, the new supply is simply making up for the lack of new construction from 2009 to 2013.”
He cautioned, however, that if RevPAR growth slows down or flattens, and if new supply keeps getting added, there could be increased pressure placed on older hotels as they struggle to compete. Going forward, Reay said it will be important for lenders and developers to carefully monitor the new hotel supply pipeline before jumping into the market.
Strength of Tourism Economy
San Diego County hotels since 2013 have generally continued to benefit from national and local improvements in the tourism economy. First-half 2016 performance data from research firm STR indicated that the region’s hotels are generally tracking ahead of U.S. numbers on metrics such as occupancy (76.8 percent), average daily rate ($150.25) and RevPar ($115.44).
The local region’s overall hotel revenue rose 3 percent from the same six months of 2015, reaching $1.28 billion. The occupancy rate was down 0.6 percent from a year ago, but all local metrics remain near their peak post-recession levels, even as year-over-year growth rates have dipped from levels seen at the mid-points of 2014 and 2015.
High-end hotel operators were likely cheered by STR data showing that U.S. luxury chain properties had a 75.5 percent occupancy rate for the first six months of 2016, well above the overall U.S. occupancy rate of 65.1 percent.
Possibly reflecting differences in the disposable incomes of their target customers, occupancy generally dropped in direct proportion to price ranges among seven chain categories tracked by STR. For instance, mid-scale hotels had a 58.5 percent occupancy and economy hotels were 57 percent occupied in the first half of 2016.
Some local hotel submarkets are faring better than others, and downtown San Diego remains among the strongest in the current economy. In a recent report by consulting firm RAR Hospitality, CEO Robert Rauch said the downtown market eclipsed the 80 percent occupancy mark in 2015, reaching 80.4 percent and topping the prior year by 1 percent.
Downtown’s average room rate grew 7.8 percent and its RevPAR rose 8.8 percent during 2015. Rauch said downtown is driven largely by group business and convention center demand, with some corporate travel and a strong leisure-travel base adding to the mix.
Rauch said hotels also continue to benefit from downtown’s improvements to its overall lifestyle and environment, with big beneficiaries including Little Italy, the Gaslamp Quarter and the waterfront area.
Interviewed just before the preview at the downtown sales office for his new Pendry San Diego, developer Green, who heads the eponymous Robert Green Co., said he is also busy with preparations for another hotel project that his company has proposed for a site behind the San Diego Convention Center, in partnership with San Diego’s Fifth Avenue Landing LLC.
That project — calling for an upscale high-rise hotel with around 830 rooms and a low-rise, lower-priced hostel-style offering with about 560 beds — has received informal support from port district officials but will also eventually require the formal blessing of the California Coastal Commission. Green said the project responds to a mandate from the coastal panel to include lower-priced hotels in the mix along with the more swank offerings.
Room for More?
Green said he’s not daunted by the growth of competing hotels in the downtown market, including a similar multi-concept mix of upscale and low-priced hotels proposed recently by Protea Waterfront Development as part of a larger plan for the current site of nearby Seaport Village.
“We think we’ve got a great location and good mix of product there,” Green said, adding the convention-center-adjacent project would likely not break ground until 2018 or 2019 at the earliest.
Upscale hotels also are likely to be part of the upcoming $1.3 billion redevelopment of downtown’s Navy Broadway Complex by Manchester Financial Group.
Other new hotels, at various price points, are in the works by several developers at locations including Harbor Island, Liberty Station in Point Loma, Millenia in Chula Vista, Legoland California Resort in Carlsbad, and downtown Oceanside.