United States -  San Francisco - San Mateo

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The San Francisco hotel market (defined as San Francisco and San Mateo Counties) benefits from a diverse economic base, with strong employers in the technology, healthcare, financial, and education sectors. In particular, the region is a major center for technology innovation, and is home to industry-leading tech companies such as Google, Apple, Facebook, eBay, and Hewlett-Packard (HP). While the hotel market experienced a decline in RevPAR in 2017 due to disruptions caused by renovations at the Moscone Center, local hoteliers significantly increased average rates in 2018 to offset the declines in demand. In recent years, the greater San Francisco hotel market has been established as one of the strongest performing markets in the country, with RevPAR reaching a historical peak in 2018. According to SF Travel, 2019 is expected to be a record convention year for San Francisco, following the reopening of the expanded Moscone Center in January.

The greater San Francisco hotel market benefits from a strong commercial base, the city’s reputation as top-tier tourist destination, and a recently expanded convention center. Commercial demand remains strong, attributed to diverse economy of the San Francisco Bay Area, as well as the continued expansion of the technology industry. Despite concerns regarding the unsafe streets and homeless population in San Francisco, the city’s tourism increased to record highs in 2018, attracting more than 25.8 million visitors. With the full reopening of the Moscone Center in January, tourism levels in 2019 could potentially surpass those achieved in 2018. While the number of group bookings dropped from just over 1,020,000 in 2014 to a low of nearly 610,000 in 2017 while the convention center was under renovation, SF Travel is anticipating a record convention year of more than 1,210,000 room nights booked for 2019.

Despite the high barriers to entry, new hotel development has picked up in recent years. Since 2017, nearly 1,000 rooms have entered the market, with three branded properties opening in the first quarter of 2019 (the 230-room Hyatt Place, 200-room YOTEL, and 194-room Virgin Hotel). Four additional hotels representing nearly 850 rooms are currently under construction, including the 195-room CitizenM Union Square, the 169-room Waldorf Astoria, 250-room Marriott SOMA Mission Bay, and 232-room LINE San Francisco. Given the limited new supply over the past decade, the market is anticipated to quickly absorb this new room inventory, and these higher-rated properties should support continued ADR growth through the near term.

Following a slowdown in transaction activity in 2016 and 2017, sales pace rebounded strongly in 2018, more than tripling the number of hotel sales from 2017. The most notable sales of 2018 included five hotels that transacted together as part of a portfolio for allocated prices between $82.5 million and $148.6 million, or $629,850 per room for all five properties. The sale of the Huntington Hotel, at $650,000 per room, represented the top single-asset transaction in 2018. San Francisco remains one of the nation’s top gateway cities; as such, the market will continue to draw significant interest from both hotel developers and investors alike.

* 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.

For the Latest Information and Analysis on the Impact of COVID-19Click Here

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For more information, please contact:

Suzanne Mellen, MAI, CRE, FRICS, ISHC
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John Berean
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