United States -  San Jose

Overview:

The Silicon Valley market encompasses the southwestern portion of the San Francisco Bay Area, including the cities of San Mateo, Redwood City, Menlo Park, Palo Alto, Mountain View, Los Altos, Sunnyvale, Santa Clara, San Jose, Milpitas, Cupertino, Campbell, Saratoga, and Los Gatos. Lodging demand in the area is heavily driven by the high-tech industry, with major technology companies such as Google, Facebook, Apple, Samsung, and LinkedIn headquartered here. Recent developments such as the opening of Facebook’s new 430,000-square-foot campus in Menlo Park (March 2015) and the expansion of the construction of Apple’s $5-billion, 176-acre Campus 2, which is scheduled for completion in late 2016, have also positively influenced lodging demand in this market.

Market-wide hotel occupancy reached nearly 78% in 2015, and average rate surpassed $170 (an all-time high) that year. The market is experiencing some new supply growth, mostly within the branded select-service and extended-stay categories; the 175-unit Residence Inn by Marriott San Jose Airport, 146-room SpringHill Suites by Marriott San Jose Airport, 138-unit Residence Inn by Marriott Palo Alto Menlo Park, 85-room Aloft Sunnyvale, 138-unit Homewood Suites by Hilton Palo Alto, 174-room Hilton Garden Inn Palo Alto, 175-room Aloft Santa Clara, 23-room The Clement Hotel Palo Alto, and the 19-room Enchanté Boutique Hotel Los Altos opened in 2015. Five properties (totaling 1,039 rooms) in the cities of Cupertino, Milpitas, Palo Alto, and San Jose are currently under construction and scheduled to open in 2016. Fueled by strong market performance and expectations for continued growth, developers continue to propose new projects in the market, despite the relatively high cost of development and a challenging entitlement process.

Transaction activity in Silicon Valley remained relatively strong in 2015, as investors were eager to participate in the market. Full-service and extended-stay hotels continue to attract REITs, domestic buyers, and overseas capital. Starwood Capital purchased the Sheraton Sunnyvale for $618,000 per room in October 2015, and the Four Seasons Silicon Valley sold to Blackstone for $918,000 per room in December 2015 as part of the Strategic Hotels buyout of $3.93 billion. Transactions thus far in 2016 include the sale of the 160-room Hilton Garden Inn Mountain View for approximately $463,000 per room and the sale of the 30-room Santa Clara Inn San Jose for approximately $287,000 per room.

* 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 Jose United States
Previous Year +10% (2 of 71) +1% (49 of 71)
Growth in 2017 -1% (61 of 71) +2% (36 of 71)
Growth in next 4 years +8% (54 of 71) +12% (32 of 71)

Change In Value For Market:

San Jose RevPar % Change

For more information, please contact:

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)
Patrick Bursey
pbursey@hvs.com
  • +1 619 772-0568 (m)