United States -  San Diego

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The San Diego hotel market continues to strengthen, with market-wide occupancy reaching a historical peak for the sixth straight year at roughly 79% in 2018. Similarly, average daily rate (ADR) reached an all-time high of $166 in 2018, representing an increase of 3.9% over the prior year. Over the course of the current cycle, RevPAR growth has averaged 5.9% annually. The market continues to be anchored by the leisure industry, as well as 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. Furthermore, 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 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 four years. Unemployment in San Diego remains below both the state and national averages and has continued to decline in recent years, indicating 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 780,000 attendees in fiscal 2018. Plans to expand the convention center have stalled in recent years, and although the proposed expansion plan will be on the ballot in March 2020, 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, Petco Park, and world-class beaches, as well as 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 annual supply growth averaging 0.8% from 2010 through 2018. More recently, a significant number of new hotels are proposed for the San Diego market, particularly in Downtown San Diego where 2,100 rooms are under construction. Hotels proposed for the market include a broad range of properties across all of the categories. The market's most prominent project is the 1,335-room Navy Broadway Complex, which includes two hotels. Other notable projects under construction include the 168-room Guild Hotel and the 228-room Carte Hotel & Suites. 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.

Hotel transaction volume in the San Diego market was robust in 2018, with a total of 22 transactions during the year, representing an increase of 30% over the prior year. The investment landscape continues to include brokers and lenders seeking good-quality assets given the market's strong performance and high barriers to entry. The most notable sales of 2018 included the 329-room Park Hyatt Aviara, which transacted for $170 million ($517,000 per room), as well as the 462-room Paradise Point Resort & Spa and the 357-room Hilton San Diego, which transacted together as part of a portfolio for allocated prices of $250 million and $193 million, respectively, or $540,000 per room for both properties; this represents the sale with the highest dollar amount in 2018. The outlook for the San Diego market is positive due to anticipated high-quality hotels entering the market, the market's high barriers to entry, the strong base of group and government demand, and favorable economic conditions throughout Southern California.

* 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.

The widespread impact of the coronavirus (COVID-19) has had an unprecedented impact on hotels and hotel values worldwide. Consequently, the latest HVI analysis may no longer reflect the most current measure of lodging industry strength or the hospitality investment market.

In each of our offices across the globe, we are working tirelessly to analyze the impact of recent events and provide timely insights to help you navigate these uncharted waters. Because it is unclear how long the pandemic will last or how long related restrictions will be in place, we are updating our analyses on a weekly basis using the most current data.

Additionally, examination of value trends in prior cycles can provide useful information. Historical patterns, together with an understanding of the market’s current expectations for the eventual recovery of the industry and its performance, can provide insights on the likely trajectory of decline and recovery for hotel values.

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