San Diego Lodging Market Booming

"Travel U.S." demand produces plans for as many as 11 hotels

By: Lisa Jennings

With the opening of the hugely expanded Manchester Grand Hyatt earlier this month, San Diego is now home to the state’s second-largest hotel in terms of rooms, and the tallest on the West Coast waterfront.

The massive, 1,625-room Manchester Grand is only the most recent addition to San Diego County’s booming hotel industry. At least seven more hotels are under construction or soon to begin building, with four more in the early planning stages.

Analysts say the San Diego lodging market has become one of the strongest in the country, despite a gloomy outlook for the nationwide hotel market.

After two years of decline in the U.S. lodging market, the first half of 2003 brought more challenges with war, SARS and dampened corporate travel.

While California’s lodging market has generally fared better than the rest of the nation, San Diego stands out as the state’s top-performing city, according to Ernst & Young’s California Mid-Year Lodging Report.

Average revenue per available room for the first half of the year was $76.06 in San Diego, compared with $58.59 statewide and $48.70 for the United States, according to the report.

And though the city’s occupancy rates were relatively flat earlier in the year, in July, which is typically high season, San Diego had the highest hotel occupancy rate of any city in the top 25 markets across the country, according to Smith Travel Research.

San Diego’s occupancy rate of 85.3 percent in July was up about 3 percent over the same time last year, and far exceeded the national average of 69.5 percent that month.

During the first half of the year, San Diego saw the number of visitors increase by 3 percent over the same period last year.

San Diego’s success can be attributed in part to the general trend of American travelers to stay closer to home, said Kerri Kapich, vice president of marketing for the San Diego Convention and Visitors Bureau.

The city is an easy drive for leisure travelers from Los Angeles and Orange County in California, as well as Arizona and Nevada, and marketing efforts have focused on cities within a three-hour flight, such as Seattle, Las Vegas and Dallas.

“But we haven’t put all our eggs in one basket,” said Kapich. San Diego has also enjoyed a healthy growth in meetings and conventions.

In 2001, the San Diego Convention Center almost doubled its meeting space with a $216 million expansion. Operating at 63 percent capacity, according to Ernst & Young, there is already talk of further expanding the convention center by 2008.

Next door, a new ballpark for the San Diego Padres baseball team is also scheduled to open in the spring. With that project comes a new 32-story Omni Hotel, which will connect to the new ballpark via a sky bridge.

The Omni is being developed in partnership with JMI Realty of San Diego, which is owned by John Moores, who also owns the Padres.

The 511-room hotel, with views of the city, bay or ballpark, will have 20,000-square feet of meeting space, a fitness club, and free high-speed wireless Internet access. And the Omni will be filled with sports memorabilia from Moores’ private collection, with items such as a pair of Joe DiMaggio’s shoes.

Meanwhile, Marriott International has approved the development of a Renaissance Hotel in downtown San Diego. Company officials said they hope to have a management contract signed by the end of this month.

The first phase of a Staybridge Suites is scheduled to open in December with 68 suites. The hotel, in a renovated historic building in Balboa Park, will have a total of 180 rooms. The primary owner is Shapery Enterprises in San Diego. Kimpton Hotels & Restaurants is also expected to begin construction on a new hotel in downtown early next year.

And construction was scheduled to begin before the end of the year on a 180-room hotel called The Diegan, as part of a project that also includes a House of Blues music venue.

Donna Alm, vice president of marketing for San Diego’s Centre City Development Corp., estimates that, starting with the 7,224 rooms available downtown in 2000, the city could potentially see the number of hotel rooms increase by nearly 75 percent to around 12,500 within the next two or three years.

Alm’s estimate includes several projects in the early planning stages, such as a proposed Hilton Hotel adjacent to the convention center, and the Spinnaker Hotel proposed at the Port of San Diego.

Analyst Bruce Baltin, senior vice president for PKF Consulting in Los Angeles, predicts the growth will be more gradual. But he said conditions are certainly favorable for more new hotels in San Diego.

Baltin predicted the high occupancy rate would continue into August, but room rates, which have increased only slightly from an average of $110 in July 2002 to $114 this July, will likely hold steady.

“They still have to compete with other markets that are price competitive,” said Baltin.

Outside the downtown area, Huntington Hospitality Group, based in Irving, Texas, is building a Residence Inn franchise in the Scripps Ranch area of north San Diego County with 95 rooms, which is scheduled to open this week.

In La Jolla, Lowe Enterprises is developing the 210-room Estancia La Jolla Hotel & Spa, a conference center facility next to the University of California, San Diego. Scheduled to open in March 2004, the Estancia will be managed by Destination Hotels & Resorts, a Lowe subsidiary, which also operates San Diego’s beloved Hotel del Coronado.

On Tuesday, Pala Casino’s $105 million resort and spa (www.palacasino. com) is scheduled to officially open just south of the Temecula wine region. The 10-story hotel, which adjoins the casino built in 2001, will have 507 rooms, a 10,000-square-foot spa, and 30,000 square feet of meeting space.

The casino and resort are owned by the Pala Band of Mission Indians, and the property is being developed and managed by Jerome Turk, CEO of Turk Pala Management.