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Positive Signs Point Investors to Hospitality Sector

U.K.-based InterContinental Hotels Group is among several major industry players making big bets on a continued recovery in San Diego’s hospitality economy.

Jim Anhut, chief development officer for IHG’s Americas division, points to multimillion-dollar investments being made over the next two years by its franchisees, who plan to open seven new hotels throughout San Diego County under banners including Holiday Inn, Holiday Inn Express, Candlewood Suites and Hotel Indigo.

Those debuts will start in this year’s third quarter and run through 2013’s fourth quarter. There are already 24 hotels in the region sporting IHG brands, and Anhut said the company is now accelerating development as post-recession activity continues to pick up in the key areas of government, leisure, group and convention-related hotel stays.

“Very few markets have things going on right now in all of those categories,” said Anhut.

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Experts at a May 11 hospitality outlook forum in Mission Valley, presented by CCIM Institute’s San Diego chapter, echoed the optimism about continued growth in the local hotel market, even though it could still be two to four years before business returns to pre-recession levels.

Going in the Right Direction

John Campbell, general manager of La Jolla Beach & Tennis Club, said the local hospitality market has steadily been moving off the bottom of the cycle since mid-2010.

“It’s at that point between optimism and confidence,” Campbell said. “Hold on for enthusiasm — it isn’t there yet.”

Joe Terzi, president and CEO of the San Diego Convention & Visitors Bureau, noted that the region has seen hotel occupancy growth for the past 15 consecutive months. Average daily room rates and revenue per available room rose in eight of the past nine months.

Local hotels were 66.8 percent occupied in 2010. Based on current trends, the visitors bureau projects that occupancy should return to the 70 percent level by 2013, and return to the high-level mark of 73 percent — seen in 2006 — by 2015.

The trends have recently encouraged Maryland-based Host Hotels & Resorts Inc., among the world’s largest hotel owners, to significantly boost its stake in the San Diego market, where it already owned several properties.

Host recently acquired the Manchester Grand Hyatt, the region’s largest hotel by room count, for $570 million. It is also in the midst of a $190 million renovation at its Marriott Marquis & Marina.

“We’ve invested a lot of money here,” said Christopher Ford, Host’s vice president of asset management, noting the San Diego market remains a significant revenue generator for the company.

He said the recent local market recovery reinforces Host’s preference for upscale, “irreplaceable” properties in markets where there are high barriers to entry, including limited land available for large new hotel developments.

The British Are Coming

In addition to visitor growth already under way, Terzi said new attractions being offered or planned by the region’s popular theme parks are expected to bring more hotel bookings. Also, British Airways’ direct daily flights between London and San Diego, scheduled to start June 1, are projected to create 40,000 local hotel stays annually.

He said more visitor business should come from new daily flights to Mexico, slated to be offered starting this summer by carrier Volaris, to Mexico City and Guadalajara.

Like hotel operators, British Airways is also “doubling down” on the San Diego market’s recovery, said Kevin Burns, the airline’s regional director for the western U.S. and Canada.

By the time its planes begin landing at Lindbergh Field, the carrier and its partner airlines will have invested around $100 million to provide new services in San Diego and elsewhere.

British Airways withdrew from the local market after two previous failed ventures. Burns said this time is different, partly because of the rising economy, and because its cost and revenue-sharing partnership with Spanish carrier Iberia and American Airlines makes the newest offering more financially feasible.

The airline’s overall passenger volumes have been increasing over the past two years, and British Airways projects 100,000 to 150,000 passengers annually will be using the new direct local flights. That should give the San Diego hospitality market a long-term boost.

San Diego area hotels apparently are off to a strong start in 2011. Smith Travel Research Inc. recently reported that the first quarter saw occupancy rise 4.5 percent from a year ago, while the average room rate increased 6.9 percent.

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