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A Rocky Hotel Market Adds To San Francisco’s Woes

Hotels in San Francisco have been captured by the same forces that have plagued the city’s office and retail markets, as exemplified by the recent decision by Park Hotels & Resorts to stop payments on a $725M loan

According to analysts, the difficulties in all the sectors are interrelated and connected to street conditions like cleanliness, safety and security. But they are also affected by the fact that San Francisco is a city that was overweight in technology companies, which have embraced remote work to a degree more traditional sectors haven't. 

The 1,024-room Parc 55 San Francisco as it appeared in February 2021

“There has been a huge decline in the commercial travel market, specifically convention visitors,” Atlantic Hospitality Group's Alan Reay said. “That’s why you’re seeing problems with the very, very large convention and meeting hotels. The hotels under 100 rooms are doing all right, but the people that really want to stay at a 1,500- or 1,800-room hotel are clients in town for meetings and conventions.”

The Hilton San Francisco Union Square and Parc 55, which were abandoned by Park Hotels & Resorts, are of the massive variety, boasting about 1,900 rooms and 1,000 rooms, respectively. They are the largest and third-largest hotels in the city, comprising 9% of San Francisco’s hotel inventory. 

The real estate income trust said it would stop paying loans because the decreased commercial traffic due to trends like remote work led to fewer conventions and poor street conditions. 

Reay said places like San Diego have had fewer issues keeping their hotels at healthy occupancy rates because they possess a diverse economic base.

report from hotel data firm STR found that San Francisco had the steepest decline in revenue per available room of any major city the week ending June 3, relative to the RevPAR in the comparable week in 2022, dropping 15.6%. The decline is approximately 23% from 2019 levels.

The Wall Street Journal reported New York and Los Angeles are filling their hotel rooms at rates equivalent to those seen in 2019. Not so in San Francisco.

According to San Francisco’s tourism scorecard, the city's occupancy rate was 81.5% in February 2020, before the hotel industry was effectively shuttered by the pandemic response. In March 2023, occupancy rates hovered around 66%. 

Hotel Council of San Francisco CEO Alex Bastian told Bisnow that while the rates haven't returned to pre-pandemic levels, they have come a long way from where they were in the winter of 2021 when he first took the job. 

“At that time, occupancy rates were in about the 25% to 28% range,” he said. “And that was just 15 months ago.”

Nevertheless, Bastian said more work needs to be done to return San Francisco to its former glory. 


“We need to keep pushing forward because we went from being a top three destination to being the 21st or 22nd destination in the country,” he said. “We're back in the top 10, but we need to keep pushing forward to be in the top three again.”

The vacancies have put downward pressure on revenue. The average daily rate in San Francisco was about $279 in January 2020. After dropping steeply early in the pandemic and steadily climbing since, the most recently available average daily rate of $250 still represents a 10% decline. There has been a steeper 36% decline in revenue per available unit from $225 in January 2020 to about $165 in March 2023.

Bastian said the return of robust tourism in San Francisco will help the foundering hotel industry, particularly as the convention industry will take time to recover. 

“We recognize that citywide conventions take time to get in place,” Bastian said. “In the meantime, we are also looking to do all we can to increase leisure travel.”

San Francisco Travel said it expects 23.9 million travelers to visit the city in 2023, spending an estimated $8.1B. In 2022, 21.9 million visitors flocked to the city, representing a 23% increase from the previous year and a 211% increase in international visitation. 

Those levels remain below 2019, when San Francisco witnessed a record 29.2 million visitors who brought $9.6B in spending. The record year also saw 2.9 million international visitors. 

“San Francisco is not yet reaching pre-pandemic numbers as anticipated, but we expect to see further growth this year, especially as we begin to welcome back more travelers from Asia,” San Francisco Travel CEO Joe D’Allesandro said. 

The organization also pledged to augment its sales and marketing efforts to bring conventions to the city and predicted tourism would hit 2019 levels in 2024. 

Reay said San Francisco officials have to do their part to address crime and homelessness. 

“The underlying theme that you'll read about all the time is the homeless situation in downtown San Francisco, and a lot of the stores are boarded up and they've had crime issues,” he said. 

“It’s widely publicized, and I think that has a negative impact on people wanting to travel to the city and also has a negative impact on people wanting to book conventions there.”

Reay also said that the larger hotels — including the Huntington on Nob Hill and the Yotel on Market Street, which sold in foreclosure auctions — are constrained by union contracts from controlling their expenses. 

“I think we're still going to see defaults on the larger-size hotels,” Reay said. 

But some hotel operators remain bullish on San Francisco, despite some thorny paths ahead. 

“There’s been ups and downs throughout the decades, and right now is no different,” said David Gonzalez, president of Portsmouth Square Inc., which owns the Hilton San Francisco Financial District. “Everybody runs for the hills, but we are staying put.” 

Gonzalez said his business’s rigorous focus on cost control put it in a better position to weather the storm and to be around if and when San Francisco comes back. 

“People in the hospitality business relentlessly focus on revenue, but every dollar you save is more valuable than the one you make in revenue,” he said.