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Hotels Continue To Open In San Francisco, Despite Market Cool-Off

San Francisco’s hot hospitality market has cooled down slightly with a handful of hotels opening while others begin renovations. An expected slowdown through 2018 due to the Moscone Center renovation will have some occupancy rates take a slight dip, but overall the market remains strong and several name-brand hotels continue to eye the Bay Area as a viable hotel market.

Rendering of AC South San Francisco hotel, which is expected to open late summer 2017

Both Marriott and Virgin Hotels are expanding within the Bay Area and are bringing different hotel brands to serve a wide variety of travelers. Marriott has 30 hotels in operation in the Bay Area and 12 in the pipeline. Virgin Hotels has two hotels in the works. The Bay Area offers hoteliers qualities not seen in many other regions.

“The city in particular has strong mid-week and weekend traveler demand and, given its weather, is not as seasonal as other major markets,” Marriott Hotels Vice President, Lodging Development Tiffany Cooper said.

Facebook Industry Manager for Travel Kate Hamill, Proper Hospitality Chief Operating Officer Arash Azarbarzin and Marriott Vice President of Development Tiffany Cooper

The Bay Area also benefits from having accessibility to travelers from Asia, which is a rapidly growing segment, according to Cooper, who will be speaking at Bisnow’s upcoming San Francisco hospitality event. The region rebounds faster than other markets during recessions and runs some of the highest occupancies and average rates in the U.S.

Cooper said occupancy is fairly flat in the San Francisco Bay Area, while average rates have mildly increased. From 2015 to 2016, average room rates rose 4.7% to $199 from $190, according to a report from the San Francisco Center for Economic Development. Overall average occupancy was unchanged at 80.4%. In San Francisco, occupancy rose by 1.1% to 87.6% in 2016 compared to 2015. Average daily rates are expected to slowly creep up through 2020, but nowhere near the jump that occurred when rates rose 30% from 2014 to 2015.

A rendering of the Residence Inn by Marriot expected to open in mid-August. The hotel is at Main Street Cupertino, a new mixed-use complex, and is close to Apple Campus 2.

Marriott has 30 hotels in operation in the Bay Area and 12 in the pipeline. Among the newest brands to the Bay Area are AC and Moxy, and additional hotels under the Aloft, Element, Autograph Collection Hotels and Renaissance brands, which fit the unorthodox and cultured traveler who often frequents the Bay Area, according to Cooper. The Autograph Collection Hotels and Tribute Profile offer boutique, independent properties that San Francisco is known for and allow hotel owners and guests to have a local, unbranded experience.

Cooper said she expects continued steady growth in areas like Oakland and the East Bay and San Francisco’s Mid-Market and more Marriott hotels in the years ahead.

Virgin Hotels' first Bay Area hotel will open in San Francisco in 2017 and its second will open in 2019 in Milpitas. Both hotels will be about 200 rooms. These two locations are expected to cater to the corporate transient traveler and each are close to major transit hubs, according to Virgin Hotels Head of Development & Acquisitions Allie Hope, who also will be speaking at Bisnow’s hospitality event.

Virgin Hotels has eight hotels, with one in Chicago in operation, two under construction in New York and Dallas and another to break ground in New Orleans. If the two hotels in the Bay Area go well, Hope would like to add a third hotel in the Napa/Sonoma region that caters to group meetings, weddings and leisure travelers.

Virgin Hotels Head of Development & Acquisitions Allie Hope at a previous event

One of the driving forces for Virgin Hotels to enter the Bay Area market was a lack of lifestyle hotels, which are hotels that are ingrained in the global community and offer programming that goes beyond a bed in a room, Hope said. Programming is often catered to local entrepreneurs and consists of in-house entertainment, live music and content development.

“San Francisco has always been a little different in that it is harder to get something approved and harder to get something entitled,” Hope said. “The risk of oversupply is not as great. San Francisco has a very good supply and demand for lifestyle.”

While there are good quality big-box hotels servicing the convention center, there are really only a handful of lifestyle hotels. Comparatively, New York is filled with lifestyle hotels.

Brand awareness also will give Virgin Hotels a leg up. Many of its Chicago customers come from the tech and entertainment business with some clients headquartered in the Bay Area. Many are aware of the hotel brand as well as many other Virgin brands such as Virgin America and Virgin Sport.

Find out more about Virgin Hotels and Marriott Hotels from Hope, Cooper and other experts at Bisnow’s San Francisco Hospitality – Investment & Development Series on July 18.