United States -  San Francisco - San Mateo

The San Francisco hotel market (defined as San Francisco and San Mateo Counties) continues to be one of the strongest in the U.S., with market-wide occupancy reaching nearly 85% in 2015, and average rate anticipated to maintain its high single-digit rate growth. San Francisco currently has the strongest economy in the U.S., driven by the market area's thriving technology and biotech sectors and strong tourism industry. Although the meeting-and-group demand segment continues to grow, San Francisco’s major driver for this segment, the Moscone Center, is currently undergoing a substantial $500-million expansion project. The expansion, which will reportedly increase the center’s usable space by more than 40%, is slated for completion in the fourth quarter of 2018. Citywide bookings in 2017 and 2018 are down significantly, as several major citywide conferences have canceled their events, thus causing concern for hotel operators throughout the city; however, the expansion is highly necessary and should pay off in the long run, with the recovery of displaced room nights anticipated to take full effect in 2019. Buoyed by the strength of the local economy, numerous public and private developments are underway that will further enhance the desirability of San Francisco as a place to work and live, though its high cost of living remains a challenge.

Despite the market's high RevPAR, additions to supply have been limited, as residential and office uses currently support higher land values than hotel development. There are approximately 30 hotel projects (roughly 5,000 rooms) proposed for the San Francisco hotel market. Most of these hotels will contain fewer than 300 rooms, and only a handful of them (totaling approximately 700 rooms) are currently under construction; of these projects, two entail the renovation of existing hotels. With high barriers to entry keeping supply increases in check, the value of San Francisco hotels should continue to appreciate over the next four years, albeit at a slower pace during the years that the Moscone Center is under renovation.

Transaction activity in San Francisco has slowed thus far in 2016, following several consecutive years of a very active hotel market, with buyers competing heavily for the limited number of assets for sale and sellers seeking to monetize their investment gains. Approximately 65 hotels totaling $5.1 billion in transaction volume have sold since January 2012, including such significant assets as the Parc 55 (highest total price paid at $530,000,000 or $518,000 per key); the Mandarin Oriental, which was rebranded with Loews (highest price per key at $912,000, for a total of $141,000,000); and the historic Fairmont San Francisco ($760,000 per key, for a total of $450,000,000). High investor interest continues to put downward pressure on capitalization rates, driving hotel values to peak levels. As San Francisco is viewed as one of the nation's top gateway cities, hotel investors consider it to be an essential market for their portfolio. Barring any unforeseen glitch in the technology sector, the future continues to look bright for this vibrant city.

* 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.

Change In Value For Market:

Significant Value Increase: Greater than +10%
Moderate Value Increase: Between +3% and +10%
Stable Values: Between -3% and +3%
Moderate Value Decline: Between -3% and -10%
Significant Value Decline: Less than -10%

San Francisco - San Mateo RevPAR Change

San Francisco - San Mateo RevPAR

Year RevPAR
2006 $100.49
2007 $111.24
2008 $117.19
2009 $95.01
2010 $102.26
2011 $122.37
2012 $137.89
2013 $155.24
2014 $174.85
2015 $188.00
2016 $194.51
2017 $194.43
2018 (f) $201.26
2019 (f) $214.50

For more information, please contact:

Suzanne Mellen, MAI, CRE, FRICS, ISHC
  • +1 415 268-0351 (w)
  • +1 415 896-0868 (w)
Adam Lair, MAI
  • +1 415 896-0868 (w)
  • +1 504 231-2651 (m)
John Berean
  • +1 281 381-3456 (w)