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 exceeding 84% from 2014 to 2016. 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 2018 are down significantly, as several major citywide conferences have canceled their events, thus causing concern for hotel operators throughout the city and resulting in declines in both occupancy and average rate (ADR) in 2017; 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.

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 renovation and expansion project, as noted previously. Citywide bookings in 2018 are down significantly; thus, hotel operators have been focusing on lower-rated group and leisure business to fill the gap. Operators are anticipating the current reductions in occupancy and average rate to continue through the end of 2018. With the reopened Moscone Center and strong convention calendar in 2019, occupancy is expected to increase to prior peak levels, while ADR growth is anticipated to resume.

Additions to supply in this market have thus far been limited. Recent openings include the Proper Hotel in Mid-Market, Hotel Via in South Beach, and the Bay Hotel in the Tenderloin, all of which opened in mid-to-late 2017. However, with an increase in the percentage of affordable housing units required for new residential projects, and office use hitting the Prop M cap, more developers are evaluating whether hotel use represents a higher and better use of available sites. Approximately 50 hotel projects (roughly 8,000 rooms) are proposed for the San Francisco/San Mateo hotel market, and only one of these hotels will contain over 300 rooms. Five hotels (approximately 800 rooms) are currently under construction, including the 169-room Waldorf Astoria that is part of a mixed-use hotel, office, and entertainment project that recently broke ground in the Financial District. With supply entering the market at a moderate pace, a slight decline in RevPAR, and a modest increase in capitalization rates, San Francisco hotel values are forecast to remain relatively stable in 2018. Once the Moscone Center’s expansion is completed, and as convention demand resumes, average rate is expected to recover strongly in 2019, with values increasing accordingly.

Transaction activity in San Francisco began to slow in 2016 and declined further in 2017, 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 85 hotels totaling $7.4 billion in transaction volume have sold since January 2012, including such significant assets as the Parc 55 (highest total price paid for an individual asset at $530,000,000 or $518,000 per key); the Mandarin Oriental, which was rebranded as a Loews hotel (highest price per key at $912,000, for a total of $141,000,000); the historic Fairmont San Francisco ($760,000 per key, for a total of $450,000,000); and the Ritz-Carlton San Francisco ($866,000 per key, for a total of $290,000,000). Additionally, the Grand Hyatt was sold in February 2018 along with the Andaz Maui and Hyatt Regency Coconut Point for $1 billion. 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.

* 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
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 $189.69
2018 $184.97
2019 (f) $199.07
2020 (f) $209.13

For more information, please contact:

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