United States -  San Diego

Overview:

The San Diego market encompasses a variety of communities, from Carlsbad in the north to Chula Vista in the south. In 2013, federal budget uncertainties associated with the sequestration, reduced regional marketing funds, and the lack of some large national conventions contributed to fluctuations in lodging demand. However, strong growth was recorded in 2014, a trend that continued through 2015. Improvements in market performance have been driven by a higher number of attendees at key annual conventions, such as Comic-Con International, and boosted tourism levels overall. Despite the new supply of hotel rooms coming online in the next few years, market-wide occupancy is expected to continue to grow, exceeding the mid-70% mark, and average rate is anticipated to continue to trend upward, as well. The San Diego hotel market benefits from the strong presence of maritime and defense industries, with strong demand from the tourism, tech, and healthcare sectors. In group-driven Downtown San Diego, events at the San Diego Convention Center (SDCC) dominate market performance. While there are a large number of hotel development projects in the pipeline (approximately 7,400 hotel rooms), only 2,000 rooms are expected to open in the next few years. The new hotels will mainly represent upscale select-service and extended-stay properties. In the near future, market occupancy levels are anticipated to remain healthy as they approach prior peak levels, and imminent new supply should be quickly absorbed.

While the number of hotel transactions in San Diego declined from 30 in 2013 to 25 in 2014, transaction volumes rebounded in 2015 with 30 sales, ending the year with $1.6 billion in sales, up from $585 million in 2014. It should be noted that the Hotel Del Coronado was sold to Blackstone for $635,709,640 million in December 2015, accounting for nearly 40% of the total transaction amount in 2015. Institutional investors and REITs have been the most aggressive buyers. Two other high-profile local hotels that traded hands were the 249-room Fairmont Grand Del Mar, which sold to Blum Capital for $260.2 million ($1,045,089 per room) in April 2015, and the 419-room Hyatt Regency La Jolla, commanding a $117.9 million sales price (or $281,333 per room), which was acquired by Walton Street Capital JV JMA Ventures in May 2015. San Diego has experienced an active hotel transaction market in the past two years, but soaring prices have prompted developers to consider new construction, even with the extended entitlement processes and lead times typical of California. We anticipate that hotel values will continue to rise in the near future, particularly given the market’s favorable supply-demand dynamics, and then taper off as new supply enters the market later in the cycle.

* The HVI is an index, a statistical concept reflecting a measure of the difference in the magnitude of a group of related variables compared with a base period. As such, it is a measure of broad market trends, rather than a conclusion as to the specific value of any asset, and cannot be applied to an individual asset. A good comparison is the Consumer Price Index. While this index provides a reliable measure of the overall rate of inflation in a region, it does not indicate how the price of milk has changed at your grocery store. So how can the HVI be of use to an individual investor? Although the HVI cannot tell you what a particular hotel is worth, it does provide excellent big picture data, indicating which market areas are experiencing positive trends, and thus may present good investment opportunities. The HVI for the U.S. is a measure of the strength of the lodging industry as a whole and, specifically, the hospitality investment market. The HVI for the various identified markets can provide a basis to evaluate and compare different geographic regions. For more insight on the limitations and applicability of the HVI, please read the message on the HVI home page by clicking on the graphic at the top of this page.

Valuation Trends and Predictions:

San Diego United States
Previous Year +4% (13 of 71) +1% (49 of 71)
Growth in 2017 +3% (7 of 71) +2% (36 of 71)
Growth in next 3 years +16% (4 of 71) +10% (36 of 71)

Change In Value For Market:

San Diego RevPAR % Change

For more information, please contact:

Patrick Bursey
pbursey@hvs.com
  • +1 619 772-0568 (m)
Suzanne Mellen, MAI, CRE, FRICS, ISHC
smellen@hvs.com
  • +1 415 268-0351 (w)
  • +1 415 896-0868 (w)
Adam Lair, MAI
alair@hvs.com
  • +1 415 896-0868 (w)
  • +1 504 231-2651 (m)