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San Francisco Hotel Occupancy Nearing Capacity, But Moscone Center Renovations Could Stall Growth

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San Francisco’s hotel occupancy rate has been hovering between 85% and 90%, per night rates are increasing, and international business and leisure travelers continue to flock into the city. But it’s not all good news. Upcoming renovations and closures at the Moscone Center will slow the market over the next two years.

San Francisco Hotel Occupancy Nearing Capacity, But Moscone Center Renovations Could Stall Growth

San Francisco Travel Association president and CEO Joe D’Alessandro told a 175-person crowd of hoteliers, developers, investors and designers during a recent Bisnow event he still expects growth next year, but not at similar levels to years past.

Joe said San Francisco has seen unprecedented growth in travel and tourism over the last decade, and last year occupancy reached almost 90% year-round. A few years ago, San Francisco was competing with domestic markets like Los Angeles, Chicago and Seattle, but now, “we’re competing with the entire world,” Joe said.

What’s helped rocket San Francisco onto the international stage is its Moscone Center. Even though it's the world's 25th-largest convention center, it is among the most utilized and has become particularly attractive to groups with international delegates. Moscone Center events also fill up the city, and conventions often have record-breaking attendance, Joe said.

San Francisco Hotel Occupancy Nearing Capacity, But Moscone Center Renovations Could Stall Growth
A rendering of San Francisco's Moscone Center expansion

The upcoming Moscone Center renovations and expansion (rendering above) will provide an additional 305k SF for exhibition space as well as flexible and breakout areas and pre- and post-event space, Joe said.

The expansion will allow for a continual flow of conventions. While large conventions fill up the city, they can take four or five days to move out. The expansion will allow for a convention to go on while another convention moves out.

On the downside, the Moscone Center will be closed for six months from May to September next year. Construction will be completed by December 2018. Joe said even with the expected slowdown over the next two years, pre-booking for 2019 events has already reached historic levels.

San Francisco Hotel Occupancy Nearing Capacity, But Moscone Center Renovations Could Stall Growth

Hospitality remains strong despite this hiccup. Last year San Francisco had 24.4 million visitors, up from 2% the previous year. Of those, 10.2 million were overnight visitors and generated 86% of visitor spending. Of the visitors, 59% were individual and 22% were from groups.

Joe said groups are a significant base because they bring stability—“as the economy grows and shrinks, the group market stays here and is a continual base to really count on in the future.”

Of last year’s visitors, 72% were domestic while 28% were international travelers. International visitors accounted for 60% of all visitor spending.

Average daily rate reached $216.80, while occupancy was essentially flat. Joe said while occupancy rate has slowed, daily rate has continued to increase over the past few years.

Growth will continue into next year, and Joe said the city expects a 2.8% increase in visitor volume to a total of 25.9 million visitors next year. He expects overnight volume to increase 3.1%.

Overnight visitors are a target for the city, according to Joe, especially since they spend more money in the city than day visitors. The international market will increase 4.9% with domestic travelers up 2.4%.

San Francisco Hotel Occupancy Nearing Capacity, But Moscone Center Renovations Could Stall Growth

The reopening of SFMOMA also put “San Francisco back on the map as a cultural destination,” Joe said. SFMOMA now has meeting space to offer travelers and is close to the Moscone Center.

The upcoming Warriors arena also will benefit the convention and travel industries, especially since San Francisco will be able to attract large conventions and meetings, according to Joe. San Francisco is the only city of its size to not have a large arena.

He said San Francisco Airport will continue to be an international gateway with additional nonstop services from Europe and Asia to be announced next year.

Joe said the new Trump administration raises a lot of unknowns. One concern is whether President-elect Trump’s policies could make acquiring visas harder. Currently, Chinese business travelers can get a 10-year visa and can have multiple entries without needing to renew the visa, making travel to the US more attractive.

Also, a recent survey found nine out of 10 Britons were less likely to visit the US with Trump as president. This could negatively impact the Bay Area since the United Kingdom is one of the largest overseas markets for the region, according to Joe.