Bay Area Hotel Development to Surge in 2019

Bay Area Hotel Development to Surge in 2019

San Francisco Business Times

Bay Area Hotel Development to Surge in 2019
By Alex Barreira


While 14 hotels opened in the Bay Area last year, the same as in 2017, even more may open this year — the region has 47 hotels under construction.

But prospects for future Bay Area hotel development look strong after last year’s surge in hotel proposals and construction projects, according to data in the annual report from Atlas Hospitality Group. The report predicted a healthy increase in hotel supply over the next 12 to 36 months.

Nearly half of the Greater Bay Area hotels under construction are in Santa Clara county. Developers in 2018 laid out plans to add 254 more hotels amounting to 37,000 rooms, a 25 percent increase in the region’s current room count.

San Francisco could see a surge in demand following the finished expansion of the Moscone Center, which makes it a prime venue to host more national conventions and attract events from other major cities. The center’s expanded capacity also promises a more manageable flow of traffic for local businesses, another boon for development.

In San Francisco last year, just one hotel opened: the 42-room Lodge at the Presidio. But 2019 could see the completion of several major projects as six hotels are under construction in San Francisco:

Marriott SoMa Mission Bay at 1000 Channel St.: 250 rooms
LINE Hotel San Francisco at 950-974 Market St.: 232 rooms
Hyatt Place San Francisco at 701 3rd St.: 230 rooms
Yotel San Francisco at 1095 Market St.: 202 rooms
Virgin Hotel San Francisco at 250 4th St.: 196 rooms

“Everything from San Francisco is very very positive,” said Alan Reay, president of Atlas Hospitality. “Even if construction costs were to come in higher than the resale value today might be, most developers are looking at the Bay Area on a long, long term horizon.”

San Mateo saw some of the largest new Bay Area hotels in 2018 with the addition of 454 rooms between the Hotel Nia in Menlo Park and Residence Inn in San Carlos. Construction is underway on four hotels in the county and plans are in place to build 28 more — an 11 percent increase from the plans in place at the end of 2017.

Statewide the pace of hotel openings dropped steeply in 2018, with 21 percent fewer hotels and 39 percent fewer new rooms added than in 2017. 2017 was a record-setting high for California hotels after more than 10,790 rooms opened statewide. Reay said the peak was partially to blame for the apparent drop off in 2018. In 2019, however, he sees the market heating up after 2018 finished with 40 percent more hotels under construction than at the end of 2017.

Developers throughout the state are still facing challenges from increasing construction costs driven by rising prices for labor and materials as well as from federal tariffs affecting steel and other materials from China.

Rick Swig, president of industry consulting firm RSBA & Associates, emphasized the difficulty of drawing comprehensive conclusions about the Bay Area hotel market when special conditions in “micro-markets” within San Francisco, Oakland or San Jose drive demand in divergent ways.

Swig said San Francisco, for instance, is under-supplied on hotels because developers are faced with few suitable properties to develop and exorbitant construction bids.

“It costs too much” he said.

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