While the opening of the mega bayfront resort in Chula Vista is a bright spot, hotel development in San Diego is expected to decline

By Lori Weisberg | The San Diego Union-Tribune

UPDATED: July 14, 2025 at 1:05 PM PDT

Amid a continued slowdown in hotel development, the first half of 2025 was a standout for one reason only — the opening of the 1,600-room Gaylord Pacific Resort & Convention Center, which marked the largest hotel to open in California in the past 33 years, according to a newly released hospitality real estate report.

The net effect, for both San Diego and the state as a whole, is that the massive Chula Vista bayfront project skewed the number of hotel rooms that opened during the first half of this year, compared to a year earlier.

In San Diego County, three hotels, accounting for a total of 1,699 rooms, officially opened their doors through June 30, which represents an 849% increase over the same period last year, when a 179-room hotel in Chula Vista was the only new property to open in the county, reports Atlas Hospitality Group. The only other two hotels to open this year were the 40-room Bower in Coronado and the 59-room Kasa, located on the fringe of Little Italy.

Orange County-based Atlas Hospitality, which regularly tracks new hotel development up and down the state, reported that the Gaylord Pacific resort accounted for a little more than half of the 135% increase in new hotel rooms that opened in California during the first six months of 2025. As such, it was something of an aberration for a development sector that has seen a marked slowdown in recent years, says Atlas President Alan Reay.

“For the past three years we had a decline in hotel openings, so it didn’t take much to show an increase,” Reay said. “And since COVID, a lot of stuff slowed down. What we’re seeing with the current openings is a number of them were really started when interest rates were lower and construction budgets were lower and availability of construction financing was easier. And that’s all changed now.”

More telling is the development survey’s findings on hotel rooms under construction so far this year. Statewide, the number of rooms being built declined 21% — from 15,542 in 123 hotel projects to 12,213 in 99 hotels. In San Diego County, the decline was more precipitous — 55% — but that was because the Gaylord’s 1,600 rooms were still in the construction phase last year.

During the first half of 2024, eight hotels accounting for 2,437 rooms were under construction, compared to this year’s 10 hotels representing 1,106 rooms. The largest of those is the 200-room Jamul Casino Resort hotel, which will be opening in early August.

Reay said he doesn’t see any indications of a resurgence in hotel development anytime soon, even in San Diego County, which has long been an appealing market for developers. As it is, prices for existing commercial properties are already much lower than what it would cost to build something new, he pointed out.

“You can purchase hotels now at big discounts compared to replacement cost, so we’ll see a slowdown in new construction,” Reay said. “Unfortunately, the economics of higher construction costs, the cost of financing, and the risk of building new vs. buying existing product means you won’t see a lot of new hotels being built in California, including San Diego.”

One exception is the recently announced plans to convert a now vacant office high-rise in downtown San Diego into a 560-room, dual-branded Hyatt hotel.

Especially startling, says Reay, is the growing number of projects that have stalled mid-construction. While none are in San Diego County, there are three in Los Angeles County, one in San Francisco, and five in Riverside County.

“What we’re finding now is that a lot of sites that had been approved for hotel development are either getting deferred or abandoned altogether,” he said.

One of San Diego’s biggest hotel projects, a 1,150-room hotel tower proposed for the downtown waterfront by developer Doug Manchester nearly three years ago, has still not started construction. But that’s because the current financing market and unpredictable construction costs are not conducive to commercial development right now, said Ted Eldredge, president of Manchester Financial Group.

Also weighing on the overall downtown San Diego market, he said, is the financially troubled Campus at Horton project, which is now under the control of a court-appointed receiver.

“Investors right now are more interested in buying  assets than doing ground-up construction, Eldredge said. “And with the unknown tariffs, it’s difficult to get real pricing on construction costs, so contractors will give you a higher number to hedge against unknown costs, and that doesn’t help when you go to a lender. So we want to go out to the market when it’s more favorable so we can get better terms.”

Manchester Financial Group, though, has the luxury of biding its time, because it isn’t paying anything for the Navy-owned site where the hotel would be built.

“We pay a dollar a year for the lease,” Eldredge said, “so it’s not like we’re sitting there having to pay a loan or pay rent.”

Originally Published: July 14, 2025 at 6:00 AM PDT