Chris Barnett on Business Travel
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San Francisco Is Suddenly a Lodging Bargain
September 15, 2016 -- Just when business travelers may be convinced San Francisco hotel rooms are the world's priciest, rates are softening. Some real bargains are now available if there isn't a citywide convention in town.

Why? The Moscone Convention Center announced in May, 2015, that two of its three exhibit halls will be closed from April through August next year. That carved a lot of exhibit space out of the market and trade shows that book far in advance are going elsewhere.

Nightly hotel rates are already reflecting the drop in demand. If a major convention hasn't blocked all the hotels, a king-bedded room in a four-star property is averaging $200. That's about 50-75 percent lower than 14 months ago. As you can see by the chart below, a huge convention next week is blocking hotels and rates soar. But by next Friday, the convention is gone and nightly rates plunge.

WHAT A DIFFERENCE A DAY MAKES

Hotel

Sept. 22

Sept. 23

Fairmont Hotel

$769

$390

Marriott San Francisco

$709

$289

Hyatt Union Square

$729

$309

Le Meridien

$699

$313

W Hotel

$759

$379

InterContinental

$604

$255

Westin St. Francis

$699

$299

Rex Hotel

$609

$269

Sir Francis Drake

$769

$260

Ritz-Carlton Nob Hill

$999

$424

Notes: September 22 is the final day of San Francisco's largest convention, Oracle OpenWorld, which attracts more than 60,000 attendees. September 23 is a "normal" occupancy day. Rates do not include taxes of 16.5 percent.

Rate-conscious road warriors may not believe the turnaround. In June, 2015, Bloomberg News claimed San Francisco's hotel rates were the highest in the world. Average prices to stay in the City by the Bay were pegged at $397 a night, more than $100 higher than second-place Geneva, Switzerland.

Local hotel and travel officials protested immediately, claiming the story's quoted room rate also factored in rates during January's Super Bowl. In contrast, PKF Consulting USA, a hospitality research company, forecasted an average daily rate at $255 a night. But the damage was done. San Francisco was seen as gouging visitors.

It certainly looked that way. Fourteen months ago, the same king-bedded room fetching $200 a night today was priced at more than $600--and that was in a week when Moscone Center wasn't filled. There were, however, other demand pressures. San Francisco's tech sector was white hot at the time with Silicon Valley companies moving into the city. East Coast institutional investors were gobbling up San Francisco hotels like conventioneers at a buffet table. And developers were paying top dollar for prime land and earmarking it for office towers and residential projects.

Despite the high rates and limited room supply, hotel investors were frozen out. The city had few hotels in the construction pipeline. Hotel investors wanting into San Francisco had to buy existing properties and reflag them. And with the city on a seemingly endless roll, the ante was high.

The roller coaster started when Hilton spent $530 million to buy the Parc 55 near its flagship Hilton Union Square. Critics scoffed but occupancies today match other San Francisco hotels. The two Hiltons average about 80 percent occupancy and a typical rate is $222 a night if there is no citywide convention at the Moscone Center.

With little fanfare, the 681-room Westin at 50 Third Street, which opened as an ANA, became the Park Central. Never mind that the reflagged hotel has no national brand identity. It is just a block walk from the Moscone Center. Rates for a king-bedded room were $661 a night at the time of the takeover. On a recent Tuesday, the room was fetching $209 nightly on Expedia.com. Next, the elegant Mandarin Oriental Hotel vanished when its owner sold the property to Loews Hotels. It was promptly reflagged. The rate a year ago was $850 a night. A recent midweek quote for a room with a killer view was $419 a night.

Several hotels that were in the construction pipeline when the feeding frenzy began last year have opened and that has helped lower rates, too. A 174-room Hampton Inn opened a year ago at 942 Mission Street, two blocks from the Moscone Center. Rates start at $189 a night, but shoot up to $329 if a citywide convention is in town.

In June, a Seattle firm modernized and re-opened a 100-year-old, 93-roomer at 580 Geary Street. Now called the Alise, it's aimed mainly at tourists. Weekday rates start at $209 daily and top out at $479 a night when a mega-convention is in town.

Hotel room rates could be flattening for other reasons, too. The high price of office space has sent some companies to lower-priced cities. There's now a glut of luxury condominiums, many in considerably less desirable parts the city. So, suddenly, the choicest commercial real estate sites are now being offered to hotel investors and developers.

A high-rise hotel and office complex recently was announced for the corner of Market and Montgomery streets, where the headquarters of the defunct Crocker Bank stands. But that's a long way off and it isn't likely to impact room rates for three or four years.

Still, San Francisco hotel consultant Rick Swig of Rsba and Associates says business travelers will be getting good deals on rooms through the end of 2017. At least they will if they aren't coming into town as part of a super-sized trade show or convention. "Citywide activity will be cut by at least 40 percent," he says. "When San Francisco is not packed to the gills there will be significant room availability and the opportunity to get better rates."

There's even promotional pricing going into the traditionally busy autumn season. The Stanford Court Hotel on Nob Hill is touting a $149-a-night rate that includes a one-way limo ride to or from San Francisco International. The deal continues through January.

Research Assistance by Arash Malekzadeh

This column is Copyright 2016 by Chris Barnett. JoeSentMe.com is Copyright 2016 by Joe Brancatelli. All rights reserved. All of the opinions and material in this column are the sole property and responsibility of Chris Barnett. This material may not be reproduced in any form without his express written permission.