The San Diego hotel market continues to strengthen, with market-wide occupancy reaching a historical peak for the fourth straight year at roughly 77% in 2017. This represents a 14-point increase from the market's recessionary low of 63% in 2009. Over the course of the current cycle, RevPAR growth has averaged 6.2% annually; however, slowing growth in both occupancy and average rate (ADR) resulted in the lowest RevPAR growth in 2017 since the recovery began in 2010. Nevertheless, the market continues to be buoyed by the federal government and the military; in recent years, more than 20% of San Diego's GDP has been related to the military and defense industrial base. Another key factor of the market is the existing convention center. As one of the nation's most desirable convention markets, San Diego attracts a multitude of events throughout the year. The convention center is currently operating near its capacity, and hotels throughout San Diego continue to benefit from the compression generated by this facility. Lastly, the emerging technology sector is an important factor in this market; according to local officials, the tech sector is expected to grow by 5% over the next five years. Unemployment in San Diego remains below both the state and national averages and has continued to decline in recent years, another indicator of a healthy economy.

Demand in the market continues to be balanced. San Diego remains a top-tier convention destination, with the San Diego Convention Center accommodating more than 899,000 attendees in fiscal 2017. Plans to expand the convention center have stalled in recent years, and although the proposed expansion plan will be on the ballot in November 2018, the project would not be completed until at least 2022 or 2023. Other demand generators, such as Balboa Park, the San Diego Zoo, Sea World, Legoland, the world-class beaches, Petco Park, and a vibrant downtown, helped drive tourism to record levels in the past few years. Going forward, the degree of demand growth in San Diego may hinge on the federal budget; specifically, it remains to be seen to what degree increases in military spending would be offset by cuts to other federal agencies. Furthermore, the strength of the U.S. dollar could affect international leisure travel. Regardless, the demand outlook for San Diego remains optimistic.

Total supply has increased at a consistent pace, with growth registering between 0.8% and 1.7% each year from 2013 through 2017. Having said that, however, a significant number of new hotels are proposed for the San Diego market. The pipeline includes more than 40 new properties encompassing approximately 12,500 rooms; hotels proposed for the market include a broad range of properties across all of the categories. Notable projects include the 400-room InterContinental Hotel, which is nearing completion; the 1,360-room Navy Broadway Complex; and several small, branded, select-service hotels. Although the market is somewhat underserved during peak demand periods, the substantial amount of proposed supply could have a major impact on market-wide occupancies and average rates, especially if the convention center does not undergo a contiguous expansion.

Transaction activity in San Diego slowed in 2016 and 2017, as was the case in most major markets in the U.S. Most of the transactions in 2017 represented smaller, select-service and limited-service properties located in the suburban areas of San Diego. A handful of these sales prices exceeded $200,000 per room, while most of the transactions reflected amounts in the $100,000-per-room range. Despite this trend, San Diego remains an attractive market for institutional capital, and trophy assets should continue to draw investor interest both domestically and internationally. Although overall growth has slowed, the outlook is positive given strong leisure and group demand and a stable economy bolstered by the federal government.

* 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.

ADR, Demand, Occupancy, RevPAR, and Supply Projections:

Change In Value For Market:

San Diego RevPAR Change

San Diego RevPAR

For more information, please contact:

	Adam Lair, MAI [email protected] +1 415 896-0868 (w) +1 504 231-2651 (m)
	Aaron Solaimani [email protected] +1 425 761-1699 (w)
	Luigi Major, MAI [email protected] +1 310 270-3240 (w)