High RevPAR Attracting Hotel Development In San Francisco
A plethora of hotels are going up in the San Francisco Bay Area. Despite the high barrier to entry market, investors and developers continue to turn toward the Bay Area because of the booming tech industry, highest-ever RevPAR rates and continual revenue growth.
We caught up with Hyatt Hotel VP, real estate and development Chris Dobbins (above with his kids), who will be speaking at an upcoming Bisnow event, to find out what makes San Francisco's hospitality market ideal.
He says San Francisco is a difficult market to get into because it’s hard to get land and to get through the entitlements process, CEQA, city council and neighborhoods. But the end results make it worth it.
“If you get a hotel in San Francisco, the performance metrics have been growing and RevPAR reached its highest level ever last year,” Chris says.
RevPAR reached about $188 last year, the highest within the last five years; as of September, RevPAR stands at about $201, according to STR data. Total revenue last year reached $3.5B, the highest within the last five years.
Hyatt has been lucky to get several deals in San Francisco as well as Silicon Valley and the Peninsula. The hotel company, through a JV with a development partner, plans to build a Hyatt Place at Market and Second streets on an old McDonald's site. A Grand Hyatt (above and below) at San Francisco Airport is already in the works.
There are also deals going through in Burlingame and the Peninsula. Silicon Valley is also a prime area for Hyatt with a Hyatt Place and Hyatt House under development in San Jose. A boutique hotel dubbed Hyatt Centric will be going into Mountain View.
Chris tells us San Francisco “has a recipe for a very good hotel market" because it attracts business travelers Sunday through Thursday and leisure travelers Friday and Saturday.
Hyatt is attracted to high-barrier markets, such as San Francisco and Silicon Valley, which have land costs equal to or higher than New York, Chris says. Another attraction to the Bay Area is the growth of tech and biotech companies. The region also has a strong leisure component and is a hub for Asian travelers, many of whom are already familiar with Hyatt due to its large presence in Asia.
Chris says there are still plenty of challenges for hoteliers in the region.
“People are paying ridiculous prices for land, and we typically can’t compete with them,” he says. Hyatt and partners have put in bids for expensive land parcels in the Bay Area, but multifamily developers and investors come in with much higher bids and end up increasing the overall price of land.
He adds companies like Airbnb are also creating competition. Several multifamily buildings are being built and used to provide Airbnb accommodations, but don’t need to follow the same regulations or pay taxes like hotels. But a hotelier like Hyatt can bring jobs, offer tax revenue for the city and offer visitors a high-end brand, Chris says.
“They are definitely competing with us, especially when it comes to our extended stay Hyatt Houses,” Chris says.
With the high land prices in San Francisco, Chris expects the hospitality industry to push more toward Oakland and the East Bay and toward San Jose in pockets like Foster City.
The area is attractive because companies are moving their headquarters to Oakland, the airport has been redone and land is cheaper than San Francisco. Hyatt's latest East Bay hotel in Emeryville is expected to open by the end of the year.
While Hyatt doesn’t yet have any firm plans for Oakland, Chris says “it’s definitely a target of ours.”
Hear more from Chris and our other speakers at San Francisco's Hospitality Boom event Nov. 30.
