HOSPITALITY: SD County Hotel Business Among Top 10 in U.S.

BY: KAREN PEARLMAN

JULY 3, 2023

The Covid-19 pandemic kept travelers close to home and greatly impacted the hospitality industry, with staffing cuts and hotel closures not uncommon.

But with the health emergency more in the rear-view mirror, protocols less restricted and visitors’ minds more at ease, travel picked up, optimism returned and local hotels bounced back in 2022, with numbers of visitors expected to continue to rise.

The San Diego Tourism Authority recently released a report that said that last year, $13.6 billion of visitor spending generated by 28.8 million visitors to San Diego eclipsed the $11.6 billion spent locally in 2019. While SDTA said there were six million fewer visitors in 2019, visitors last year spent more time in San Diego than pre-pandemic (4.2 nights vs. 3.7 nights).

Local hotels sold 17 million room nights last year, just shy of the 17.7 million sold in 2019.

So the hotel industry is feeling optimistic as travel demand grows, with leisure and group business travel remaining strong and the trend for workplaces to allow employees to travel and work remotely.

Tourism, Staycation Dollars Spur Remodels, Development

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Evans Hotel Group – overseeing the Bahia Resort Hotel, Catamaran Resort Hotel & Spa and The Lodge at Torrey Pines – have with confidence moving forward refreshed and renewed their properties.

A portion of the hotel rooms at 314-room The Bahia were renovated last year and just added a 3,600-square foot outdoor space called The Palm Terrace for weddings and other events.

Matt Adams, executive vice president and COO of Evans Hotels, said the Bahia’s pool area was also just renovated. Coming soon, Bahia’s rescued harbor seals, Billy and Gracie, will be taking a vacation at SeaWorld, Adams said, while their pool digs are revamped.

“We resort hotels during Covid, we learned a lot,” Adams said. “We are now seeing more people coming with their families and working remotely. We also opened Dockside 1953 at the Bahia in the summer of 2022, a seafood restaurant, and it’s doing well.”

Also since 2022, improvements have been and are still being made to the 310-room Catamaran, built by the Evans family in 1958 in Pacific Beach, and to the 170-room Lodge, built in 1961 (and purchased by the Evans family in 1995 and redeveloped in 2002) in La Jolla.

About 80 rooms were renovated at the Catamaran last year, with another 80 to be renovated this year, as well as “a refreshing of the hotel’s tower area,” Adams said. At The Lodge, the Evans group opened an outdoor food and beverage venue called Judson’s and this year did “a complete renovation of our fitness center, a techno gym with state-of-the-art equipment.”

Other hotels have also shown confidence moving forward.

At the Estancia La Jolla Hotel & Spa, the hotel renovated rooms and invested in various technologies to support staffing shortages with guests using QR codes to access information.

Eric Jenkins, general manager at Estancia, said that last year, post-pandemic travel pushed the site toward its highest revenue producing year to date, surpassing 2019, which was its previous highest earning year on record.

“However, 2023 is forecasted to exceed these numbers, despite displaced revenue with a multi-million-dollar renovation to the property,” Jenkins said.

Marriott Marquis San Diego Marina’s new multi-million-dollar, “metro-coastal” redesign of all 1,366 guest rooms and suites has received very positive feedback from both new and returning guests – with leisure demand at an all-time high, said Dan Shaughnessy, director of sales and marketing for the Marquis.

During and after the pandemic, “(We have) seen a notable increase in demand for domestic ‘staycations’ from local and regional markets, including increased interest from the 15 million-plus residents of San Diego, Orange County and Los Angeles,” Shaughnessy said.

Hotels like the Town & Country Resort San Diego in Mission Valley are tapping into the families who live in San Diego who want to staycation. The hotel offers day passes that allow families to enjoy its outdoor pools, hot tub, waterslide and more. Locals can also rent daybeds, cabanas and premium daybeds for use at the venue.

And at the Kona Kai Resort & Spa, Scott Ostrander, the hotel’s general manager, said that San Diego has had “a tremendous comeback in terms of post-pandemic travel from both the corporate and leisure standpoints.”

“Kona Kai Resort & Spa has made notable shifts in both areas that have allowed us to level up our offerings including the recent refresh of our Point Loma Ballroom, one of our highest-demand indoor venues,” Ostrander said.

New hotels are even being built in California – to the tune of 114 hotels under construction (with 15,452 rooms) and 1,249 hotels in planning (with a total of 164,951 rooms) — according to the Atlas Hospitality Group 2022 Year-End California Hotel Development Survey.

Top 10 Market

A recent study released by Newmark Group, Inc. (Nasdaq: NMRK) a world leader in commercial real estate brokerage, leasing, property management, valuation and advisory services, consulting and more, backs up the research and findings by hotel management/consulting firm R.A. Rauch & Associates.

The latest Newmark Hotel Markets Nsights Report released earlier this month, covering the first quarter of 2023, shows San Diego placing among the Top 10 markets in the U.S. based on lodging performance indexes (LPI).

For the first quarter of 2023, San Diego has claimed the top spot in LPI – despite having expensive booking costs and low loyalty contribution, ranking 90th and 87th, respectively, out of 104 markets.

“This report confirms what we have been seeing with the San Diego market,” said Alan X. Reay, president of Atlas.

Reay noted San Diego’s continual outperforming of all the other major cities in California, due in a large part, he said, to the fact that the city has a strong diversified economic base.

“Unlike San Jose or to a large extent San Francisco that have been heavily dependent on high-tech, the fallout in this business has not really impacted San Diego,” he said. “On the convention and meetings business, San Francisco and Los Angeles have seen a decline in bookings. The demand from leisure travel as well as meetings and conventions continue to be strong for San Diego and we see this trend continuing.”

Overall, Newmark research shows that the RevPAR performance of the U.S. hotel market has surpassed pre-pandemic levels, as it continues to climb upward. In March 2023, Newmark shared, the RevPAR reached $105, marking a 13% increase from the same month in 2019 (a year before the pandemic hit).

“San Diego is doing extremely well,” said Mark Capasso, executive vice president of Newmark Valuation & Advisory and based out of the company’s El Segundo office. “The reason San Diego is doing so well is there’s a great mixed balance in the hotel market. There’s leisure travel because, it’s San Diego and there are beaches and so much more. If a family can’t find something to do in San Diego, there’s something wrong.”

Business, Corporate Bookings on Upswing

San Diego County hotels have been seeing a steep rise in business and room bookings, thanks to an upswing in business travel, conventions and corporate travel during the first quarter of 2023, according to Reay.

Bob Rauch, Certified Hotel Administrator and managing partner, Hilton Campus Del Mar and Fairfield Inn & Suites San Marcos, and founder of R.A. Rauch & Associates, said that while leisure travel remains somewhat flat, group and corporate travel are both up compared to 2022 and moving toward the healthy pre-Covid-19 pandemic numbers.

“About 90% of group business and corporate business travel is up this year,” Rauch said. “There’s a near full return of group business and conventions as well as corporate meetings.”

In his mid-summer 2023 hospitality update, Rauch wrote that even as the real Revenue Per Available Room (RevPAR) is not keeping pace with the rate of inflation, experts in the hospitality sector say they expect demand for hotel rooms to continue to accelerate.

“Leisure business continues to do well, corporate and groups are growing toward 2019 levels and international travel is just beginning to come back,” Rauch wrote. “Average rates are up in all sectors, leisure, corporate negotiated and group. We do not see rate resistance yet, and all signals are good for RevPAR acceleration.

“Consumer confidence is up for the seventh straight month and Google search travel trends are back at 2019 levels. International travel is coming back with the restrictions easing, even in Japan and China,” he added.

Corporate Travel ‘Huge Driver of Real Estate’

Capasso also noted the need for the $1.2 billion Gaylord Pacific Resort and Convention Center coming to Chula Vista in 2025.

“Gaylord is building a huge convention center in Chula Vista because everything else in San Diego is growing” said Capasso, who has been in the hospitality industry since 1994.

Capasso said that San Diego’s strong military presence has kept money “flowing into the economy” for decades but that growth in commercial businesses and the way the region has been able to “bear down on life sciences has been an amazing driver for hospitality demand.”

He said many corporate travelers don’t necessarily stay in the tourist areas, they are likely to gravitate to more commercial sectors.

“The greatest thing about life sciences, and I speak mainly from the hotel’s view, is it’s a huge driver of real estate,” Capasso said. “That’s why San Diego is growing so quickly.”

“San Diego wouldn’t be No. 1 if we didn’t have full return of group business and corporate business,” Rauch said. “The Illuminas, the Qualcomms, the General Atomics, the military. Those are big drivers, and that’s all come back.”

Newmark’s Nsights report said that San Diego’s major hotel demand generators include the ones shared by Rauch as well as Rady Children’s Hospital San Diego, San Diego State University, Kaiser Permanente, Foxconn Baja California, the San Diego Community College District, University of California San Diego, and the YMCA of San Diego County as well as several others.

Of 104 markets, the report highlighted San Diego as 13th for population in regard to the hotel market area (2.9 million), seventh for income per capital ($71,535) and eighth for total market COPE ($3.8 billion).

Fred Tayco, executive director of the San Diego County Lodging Association, said that investments in projects like The Gaylord in Chula Vista and the $22.5 million renovation on the Hilton Gaslamp Quarter show post-pandemic belief in the future of the hospitality market, from top hotel executives to in-house employees.

“We’re bullish in the hospitality field because spending money shows signs that we are on the rebound,” Tayco said. “We are very bullish about the summer. This is the first year that we are going to be unfettered with Covid.”

Tayco said that last year many hotels rebounded because of what those in the industry call “revenge travel.”

“People were tired of being cooped up at home so when they were finally able to travel, they traveled with a vengeance,” he said. “This year we want to see if that trend is going to continue, and we are looking forward to a robust travel season.”