San Francisco's Hotel Industry Is Recovering, But It's Going To Be A Late Checkout
San Francisco’s hospitality industry is in the midst of a recovery, but while 2022’s performance so far is encouraging, hotels in the San Francisco Bay Area have a few hurdles before they can reach their 2019 performance.
The growth of hotel occupancy numbers is one of the strongest signs of the market’s overall recovery this year, according to San Francisco's Tourism Scorecard website.
Between January 2021 and August 2022, hotel occupancy rates jumped from 31.79% to 71.56%, and the average daily rate in that same period rose from $113.54 to $278.98.
“I would still say we're definitely still in the midst of a recovery. You know, there are other urban gateway markets that have rebounded a little quicker,” HVS San Francisco Senior Vice President John Berean said.
However, despite this stark improvement from 2021, San Francisco is still very much in a recovery stage, especially compared to markets like New York City, which is experiencing a faster bounce back toward pre-pandemic levels, due to the types of travelers those cities attract.
"We're not a big spring break destination, but we did see some pretty good leisure demand over the summer of 2021. And then we started to see a little bit of group demand rebound towards the end of last year,” Berean said.
Convention travel, traditionally one of the city’s main hotel draws, is the largest unknown for gauging hospitality recovery. So far, experts are optimistic, but the consensus is that recovery is still a few years out.
Visitor numbers released by the San Francisco Travel Association last week indicated that visitor volume is up by 26.5% from 2021, rising from 17 million and expected to reach 21.5 million by the end of the year. However, those numbers are down compared to previous years, and visitor spending is not expected to surpass 2019’s performance until 2025, according to a recent press release.
"We are clearly on the road to recovery, but we still have a way to go before we will reach pre-pandemic tourism levels. San Francisco will not see a full recovery until travelers from Asia return and business travel and group business increases,” San Francisco Travel President and CEO Joe D’Alessandro said in the press release.
Revenue per available room, or RevPAR, is also on the upswing according to CBRE, rising from $90.54 to $159.10 quarter-over-quarter. Other Bay Area markets, such as Oakland and San Jose, saw similar improvements.
Berean also expects the market to see more of a return to form by 2025, but there are bright spots with pending conventions for San Francisco, such as Dreamforce 2022 and the J.P. Morgan Healthcare Conference in 2023.
Developers are taking a conservative approach to building new hotels in San Francisco, with the inventory of rooms remaining mostly flat at 1.1% in 2022.
On the capital side of the coin, hotel acquisitions have been slow in the Bay Area. Still, hoteliers such as Pebblebrook have not hesitated to offload underperforming hotel assets in the city.
The company in July sold the 236-room Spero Hotel for $71M, according to HotelManagement.com. The hotel had experienced diminished financial returns, with an operating loss of $1.6M by June 30.
Berean said that in general, hotel owners are holding firm, as pricing could be better.
“They are holding on to assets for now. If anything were to hit the market, they would expect a discount of pre-pandemic levels, which maybe might be why, you know, sellers are on the sidelines for the moment,” he said.
“Prices are a little down. But the other thing is where interest rates are. As a hotel appraiser, we do tons of work for refinancing, as well as sales. And it's been very, very, very quiet in July and August,” Berean added.