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San Diego rises as a diverse market
March 5 2013

The San Diego hotel market has many demand drivers, and in recent years the city has become a go-to market for hosting conventions.

Highlights
  • San Diego hotels ended the year with a 2.9% increase in occupancy to 70.7%, a 4.4% increase in ADR to $131.60 and a 7.4% increase in RevPAR to $93.01.
  • Pebblebrook Hotel Trust in January purchased the 337-suite Embassy Suites San Diego Bay-Downtown for $112.5 million.
  • The San Diego Convention Center has planned an expansion to be completed by 2016.
By Samantha Worgull
Editorial Assistant
sworgull@hotelnewsnow.com

REPORT FROM THE U.S.—The San Diego hotel market used to be dependent on its military and leisure demand, but the market has become more diversified in recent years, specifically in the meetings and conventions arena, according to sources.

With the proposed expansion of the San Diego Convention Center, which is set to be complete by 2016,  and the $1 billion expansion of the San Diego International Airport, the market’s reputation as a top meetings location is likely to grow, said Alan Reay, president of Atlas Hospitality Group, a company that specializes in the sale of California hotels.

Raymond Martz, executive VP and CFO at Pebblebrook Hotel Trust, said proximity to the convention center was one of the reasons the real estate investment trust in January purchased the 337-suite Embassy Suites San Diego Bay-Downtown for $112.5 million.

“It was definitely a competitive deal,” Martz said. “Embassy Suites is a category killer, so we’re keeping that flag.”

Martz added that the company has approximately $7 million set aside for the asset, which will help aid a combination of refreshes to the guestrooms and the exterior. HEI Hotels & Resorts will manage the property.

The 1,220-room Hilton San Diego Bayfront hotel, which has 165,000 square feet of meeting and event space, hosts many conventions each year, said the hotel’s GM J. Peter Lynn. The hotel’s mix is 60% convention business and 40% transient, he said. Thirty percent comes from citywide conventions.

“There’s a nice balance between convention business and leisure business, which is one of the reasons San Diego is such a nice destination,” Lynn said. “But total spend for convention is greater than the transient.”

San Diego hotels ended 2012 with a 2.9% increase in occupancy to 70.7%, a 4.4% increase in average daily rate to $131.60 and a 7.4% increase in revenue per available room to $93.01, according to data provided by STR, parent company of HotelNewsNow.com.

A supply race
While the San Diego hotel market is able to provide enough rooms to meet demand, it’s still a race to enter the market, said San Francisco-based Aaron Solaimani, consulting and value analyst at HVS.

“Whoever does get (a hotel) open will kind of be ahead of the game,” he said. “The market’s hot right now. A new hotel would probably perform really well.”
 
There are many hotels in the planning stages, but the lead time to get from planning to construction is anywhere from 12 to 24 months, according to Atlas’ Reay. Some of the new hotels coming online in 2013 include:

  • the 78-room Seacoast Hotel Imperial Beach;
  • the 89-room Holiday Inn Express Hotel Circle;
  • the 181-room Hampton Inn & Suites Mission Valley; and
  • the 254-room Legoland Hotel.

Reay added that most development is occurring in the north coastal region of San Diego as a direct result of land available. Carlsbad and Oceanside have more than 10 new hotel projects planned, which are mainly Hilton Worldwide and Marriott International brands.

According to STR pipeline data, there are seven hotels in construction and 20 hotels in the planning or final planning stages in the San Diego market.

Outlook
Sources agreed that in addition to being a go-to market for conventions, San Diego will remain a robust leisure market as well.

“Tourism is a great business for San Diego because of the climate, proximity to Mexico and all the tourist attractions including Sea World, Legoland, Wild Animal Park and the San Diego Zoo,” Reay said.

One thing the market is still lacking, however, is commercial business, said HVS’ Solaimani.

Hilton San Diego Bayfront’s Lynn said that occupancies have always been strong in the market, but lately it’s been all about rate.

“Continuing to test the market to find out where the ceiling is and where the balance between production and revenue management is has become such a science today,” he said.

Solaimani said he fears that despite the fact that many San Diego hotels are reporting more than 80% occupancy, the market will reach an ADR cap and hoteliers won’t be able to push rate.

“I don’t know if it will transform into a San Francisco or a New York City,” he said. “You can only push group so far. The future is strong but also depends on a lot of stuff going through.”

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