Northern California Hospitality Market Report
Market Overview
The hospitality sector in Northern California displays promising signs of growth across all its regions. Despite challenges, the San Francisco/San Mateo market has demonstrated significant year-over-year growth, with high ADRs and improved occupancy. San Jose has experienced a slower recovery, but RevPAR has shown a positive upward trend, and hotel development remains robust. Sacramento stands out with its high-end hotel inventory and substantial expansion in both development and employment. In Oakland, despite not being highly traded, the market has seen moderate investment activity and steady employment growth. Overall, Northern California’s hotel market displays varying degrees of recovery and development across the San Francisco/San Mateo, San Jose/Santa Cruz, Sacramento, and Oakland regions.
Highlights
- In the next two years, additional transactions are expected in San Francisco as 22 out of 31 active CMBS loans are set to mature.
- Top tech players like Apple, Meta, Amazon, Google, and Adobe continue to contribute to business travel demand in the San Jose and Santa Cruz market.
- What sets Sacramento apart is its skewed inventory towards the high-end segment, with over 25% of rooms classified as Luxury or Upper Upscale, a higher proportion than most U.S. markets.
- RevPAR in the Oakland market has increased by 19.6%, surpassing the historical average of a negative 2.9%.
San Francisco/San Mateo Performance
Despite a volatile economic environment, the San Francisco/San Mateo hotel market has shown considerable year-over-year growth. ADRs have consistently exceeded $200 since April 2022, with a 12-month average of $230, placing San Francisco/ San Mateo among the top markets nationally. The market has been impacted by negative national press, which has deterred leisure visitors and convention center events. However, the 12-month average occupancy through May has reached 66 percent, a significant improvement compared to just slightly above 50 percent the previous year. Further, the opening of international borders and dropping of COVID-19 testing requirements helped the market’s revenue figure as it is a top international travel destination. Despite high barriers to entry and complicated construction approvals, there are currently around 1,200 rooms under construction in the market, set to open in 2023, representing a 2.2 percent increase in inventory.
San Jose/ Santa Cruz Performance
The hotel industry in San Jose has faced a slow recovery, making it one of the hardest-hit markets nationally. However, RevPAR increased by 41.5 percent in the past 12 months, indicating a gradual recovery. The market generates group demand through the San Jose McEnery Convention Center and events at Levi’s Stadium and SAP Center. Hotel development remains strong, with 600 rooms added in the past 12 months and an additional 1,100 rooms under construction. On the other hand, hotel investment activity in San Jose this year has been minimal, with sales volume below $20 million.
Sacramento Performance
As of May 2023, the 12-month average RevPAR in the Sacramento market increased at an annual rate of 5.4 percent. With 362 hotel properties and around 29,000 total rooms, the market has an average of 81 rooms per building. In terms of development, Sacramento has witnessed significant expansion, with 1,100 rooms currently under construction and the completion of 18 projects totaling approximately 1,800 rooms in the past three years. This growth has been accompanied by about 26 hotel trades recorded in the past year. Furthermore, the market has seen an increase in employment at a rate of 2.9 percent annually, resulting in the addition of around 30,000 jobs.
Oakland Performance
The Oakland market consists of 236 hotel properties with approximately 22,000 rooms, averaging around 92 rooms per hotel, which aligns with the national average of 89 rooms. Additionally, there are 640 rooms under construction in Oakland. While not one of the most actively traded hotel markets in the U.S., Oakland experienced 15 trades in the past year, surpassing the market’s three-year average for investment activity. Further, employment in the market had been growing at an annual rate of 1.8 percent, resulting in an increase of about 18,000 jobs.
