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San Diego
Wednesday, May 29, 2024

Luxury Hotels Expect Good Nights Ahead

San Diego County’s hotel industry just completed six consecutive years of post-recession recovery. Operators of the newly opened Pendry San Diego — the

The Pendry San Diego, a 317-room upscale hotel with six restaurants, just opened on J Street in the Gaslamp Quarter.

first of at least three new high-end hotels set to arrive downtown — are betting their property has what it takes to keep that momentum going on the luxury side.

Industry veteran Alan Fuerstman, whose Montage Hotels & Resorts chose the strategic downtown location for its very first Pendry, said operators know very well how they’ll navigate an extremely competitive local climate for hotels. Early bookings, he said, indicate they also know their clientele, with the new 317-room property catering to customers seeking high-service luxury settings via a location-centric, boutique-oriented concept.

“It’s not surprising to us that there’s been a lot of new development of luxury product in that downtown market,” said Fuerstman, founder and CEO of Laguna Beach-headquartered Montage. “We feel there’s been pent-up demand in that category, and we’re going to meet that demand.”

The Pendry is the first of at least three new high-end hotels arriving downtown, ahead of an InterContinental Hotel currently under construction near the bayfront by a development group known as Lankford Phelps Portman; and a Ritz-Carlton that is part of a larger mixed-use development recently approved by the city for a location in East Village, spearheaded by San Diego’s Cisterra Development.

A Big Bounce Back

Hotel operators are seeking to capitalize on a local tourism economy that has now enjoyed six straight years of post-recession recovery, following a severe national slump that hit the industry in 2009-2010, in the aftermath of the Great Recession that started in 2008.

While industry observers are carefully watching for signs of a nationwide slowdown that could arrive in coming months, due to potential political or economic upheaval, San Diego County’s overall hotel metrics in 2016 matched or beat those seen in the pre-recession peak days of 2007-08.

According to research firm STR, the local region finished the year with its hotels at a 77.1 percent occupancy rate, up 1 percent over 2015; and the average daily room price at $154.87 for an increase of 2.8 percent.

Revenue per available room (RevPAR) was $119.39, rising 3.8 percent from 2015; and the region’s total hotel revenue increased 5.3 percent, to more than $2.65 billion. The region apparently had no trouble absorbing more than 1,000 rooms delivered to the market at six new hotels during 2016, up from more than 700 rooms delivered in 2015.

Luxury and other upscale properties were the hardest-hit during the recession, but have generally seen the biggest bounce-back during the recovery.

Alan Reay, president of hotel brokerage and research firm Atlas Hospitality Group in Irvine, said the new Pendry San Diego appears to be well-poised to capitalize on recent market conditions. That’s due in part to its room pricing (around $350 per night on average, according to operators), its level of amenities, its location in the vibrant, well-trafficked Gaslamp Quarter, and its concept that emulates an independent “boutique” style rather than a big-chain design model.

Those factors, he said, are important in attracting affluent business and leisure travelers, particularly the growing contingent of millennial-age customers. That age group now has numerous boutique-style hotel brands vying for its business, not to mention non-hotel options now available via sites like Airbnb.

San Diego County now has eight hotels with 1,444 hotel rooms under construction, and an additional 72 hotels with 14,981 rooms were in the long-range planning pipeline at the end of 2016. How those upcoming new rooms are greeted by the market, and when or whether many of them get built, will hinge on several macro-economic factors that observers will be monitoring closely in 2017.

Political Change

Jitters created by President Donald Trump’s D.C. shakeups, including changes to trade policies, could spur some industries to cut back on corporate travel. Reay said there are also concerns emerging that recently imposed immigration restrictions could impact the status of worker visas, which in turn could affect the ability of some large high-end, service-oriented hotel operators to staff their properties.

While developers remain active in building hotels that are already in their pipelines, investors’ enthusiasm could be dampened down the road by rising interest rates, along with other rising costs for construction and related expenses. Development in California remains generally robust, but there are early indications nationally that lenders are slowing down in their financing of new projects, following six straight years of property price appreciation and RevPAR growth.

“I think 2017 will be a good year locally, but it won’t be better than last year,” said Jerry Morrison, owner and CEO of lodging industry consulting firm Morrison & Co. in Encinitas. “It will probably be about the same as 2016.”

Morrison said he’s hearing from clients that some corporate and organizational customers are already becoming more price sensitive, rethinking the duration of business meetings and the types of venues where those functions are held. While San Diego remains a desirable location, he will be watching for developments this year including how the city seeks to expand the convention center to attract and retain large gatherings that help fill local hotels.

Other impacts, good or bad, will come from national events and trends that hoteliers can’t control. “Tourism is not a leading economic indicator,” said Morrison, whose past work includes serving in executive posts at La Costa Resort in Carlsbad and La Casa del Zorro in Borrego Springs. “We’ve always followed the general economy.”

Leisure and Business Bookings

For their part, operators of the new Pendry — including Fuerstman and co-developer Robert Green of Encinitas — are seeing early signs that the property is attracting a strong mix of leisure and business travelers. Fuerstman said the Pendry had sales teams in place months before the recent opening, and the hotel has corporate and other group meetings booked well into 2018, representing numerous industries.

Montage’s new Pendry brand was co-founded and is being spearheaded nationwide by Alan’s son, Michael Fuerstman, who is preparing to open the second Pendry in Baltimore next month and has several others in development nationwide. Each Pendry location will have design and service elements unique to the local market.

The younger Fuerstman said the new San Diego venue, which employs about 400, has six on-site restaurants and bars with a wide range of price points and menu offerings, which have been designed to integrate the hotel into the larger Gaslamp neighborhood. The plan is for the Pendry to become a year-round social fixture, attracting many locals and visitors who might never book one of its deluxe rooms.

Location, location — 550 J Street, between Fifth and Sixth avenues —was a major factor in operators’ planning over the past three years. They said the Gaslamp property is ready to serve vacationers, business travelers, convention center attendees, Petco Park ballgame and event-goers, and others expected to frequent the ever-growing adjacent East Village.


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