Even During A Boom, San Diego Hotels Need To Up Their Experiential Game

Boom is the right word to describe San Diego's tourism and hospitality industry — more visitors are coming each year, hotels are doing well — but does a bust inevitably follow?

The speakers at Bisnow's San Diego Tourism & Hospitality Boom event said a softening is possible, especially if the U.S. economy edges into recession, but a collapse is unlikely. San Diego simply has too much going for it as a destination.

Even so, that doesn't mean that local hoteliers or restaurant operators can coast. Travelers want more from their hotels and eateries than ever before, and if they don't get it, they are going to look elsewhere.

There is no doubt that visitors mean big business for San Diego, the speakers said, offering a few salient statistics on the industry, using data compiled by the San Diego Tourism Authority. 

In 2018, 35.7 million people visited the region, divided roughly 50/50 into overnight visitors and visitors who only spend the day. That compares with 34.9 million visitors in 2017. Visitor spending locally was $11.4B in 2018 and $10.8B in 2017.

Hotel occupancy in greater San Diego averaged 78.7% last year, up from 77.2% the year before. Revenue per available room, an important metric in the hotel business, was up from $123.80 in 2017 to $130.93 last year. 

What happens next largely depends on the wider economy, and among the speakers there was no agreement about when the current economic cycle will turn downward. The current expansion will soon be the longest in history.

Some estimates say within the next five years there will be 7,500 new hotel rooms in San Diego, though it is entirely likely that many of those rooms will remain on the drawing board for one reason or another, the speakers said. (The SDTA estimates another 3,879 rooms in the next two years.)

Though there is a lot of capital looking for strong returns, development of new hotel product locally is getting harder — it has always been a long process in California — because of rising construction costs. 

If RevPAR keeps increasing at a healthy pace and hotel room demand doesn't flag, that would probably keep much of that potential development on track, the speakers said.

Even so, some locations are naturally going to be better than others. There is enough restraint in the financial markets to prevent B-location deals from getting done, even in a relatively strong economy. 

In short, the speakers said, gross overbuilding in San Diego is unlikely, though there might be a mild case eventually.

The convention and tourism industry will support a fair amount of growth, though there will be winners and losers as new products come online. Hotels that don't keep up will suffer.

Critical to the future of San Diego's hotel business and the local economy is keeping visitors interested in the region as a destination.

As long as the region makes an effort to offer the kinds of experiences visitors are looking for, and even some off-center experiences like Austin and Portland do, San Diego will stay ahead of the curve, the speakers said.

As for the local hospitality business, hotels can't offer standard hotel fare anymore and still be competitive in an industry catering to travelers who are increasingly looking for novelty and authenticity. 

For example, hotels didn't pursue originality in their restaurants for years. Astute hotels now approach their restaurants with creating locally sourced, locally loved restaurants. People want to be immersed in their experiences.

That is easier said than done, the speakers pointed out. To make genuinely distinct hotels or restaurants requires some local knowledge — which isn't that hard to find, if you pay attention — as well as some imagination, which is in considerably shorter supply.

Before a restaurant opens, for instance, chefs need to bring their ideas to the space, walk through it and come up with a mindful concept. The chef also needs to learn about the restaurant's sources in as much detail as possible, so that the knowledge can be imparted to guests. That helps keep guests engaged and coming back and keeps them talking up a good place on social media.

Regarding social media, the speakers said it can elevate a business, but it is also fickle. It can promote loyalty, but it can also take it away without warning. It is good to know how your brand is faring on social media, but you can't focus on it alone.

On the whole, in a hospitality and restaurant context, technology has to enhance the guest experience, not replace it, the speakers said.