So far this year, just one new hotel in the county has opened — in downtown San Diego

BY LORI WEISBERG

AUG. 4, 2023 5:40 AM PT

The pace of hotel openings across San Diego continued to be sluggish during the first half of this year, with just one hotel — in downtown San Diego — making its debut in 2023.

It’s a trend being repeated across the state, according to Atlas Hospitality Group’s just released, mid-year hotel development survey. California has now seen a decline of more than 60 percent over the last two years in the number of hotels and rooms opened during the first six months of the year, the Orange County-based brokerage reported.

Similarly, San Diego has experienced a marked two-year decline — 75 percent over the last two years, Atlas Hospitality reported.

While construction activity has picked up year over year, don’t expect that trend to last well into the future, given the rising cost of financing and increases in interest rates, predicts Atlas President Alan Reay.

“Those hotels that are opening now were planned at a time when interest rates were a lot lower and people were more bullish on the real state market,” Reay said. “So even though that was a period when financing was more readily available, that really says something about the market direction of where we’re going. In our year-end survey we will likely see a decline in 2023 compared to 2022. And that will continue into 2024 and 2025.”

The lone San Diego hotel to open was San Diego’s first Marriott AC hotel, located in the Gaslamp Quarter. Construction on the long-planned project began in 2019, but less than a year after work began, the pandemic arrived, delaying the opening by at least a year, according to the developer, the Briad Group. A year earlier, the county also had added only one hotel — the 10-room Brick Hotel in Oceanside.

San Diego County hotels under construction in first half of 2023

Statewide, the largest hotel to open was a 348-room Moxy hotel in Los Angeles. Orange County did not have a single hotel opening during the first six months of 2023.

Where San Diego and the rest of the state are seeing increased activity — at least in the short term — is in the number of hotel rooms under construction. During the first half of this year there were six local hotels accounting for nearly 2,200 rooms falling in that category, an increase of nearly 13 percent compared to the same period last year.

Helping to significantly inflate that grand total is the behemoth Chula Vista project — the 1,600-room Gaylord Pacific Hotel, part of a $1.2 billion development that also includes a convention center and 1,600 parking spaces. It’s expected to open in 2025. The next largest property on the list of projects under construction is a 16-story, 200-room hotel being built on the Jamul casino property. It’s described as a boutique, luxury hotel.

Emmy Hise of CoStar sees the same construction slowdown coming that Atlas Hospitality is forecasting. The last big boom in hotel openings was in 2008, she said, when more than 2,300 hotel rooms came online. Activity picked up in 2016, peaking in 2019, when nine hotels accounting for 1,450 rooms made their debut.

“Overall there isn’t a ton of supply and that’s been the trend for a while,” said Hise, CoStar’s senior director of hospitality analytics. “We are seeing in most markets construction activity flatlining or declining because it’s so hard to get that construction financing right now. I don’t anticipate it picking up for 18 months to two years, so there will definitely be a lag in hotel development.”