A conversation Anna Marie Presutti had at a coffee shop in San Francisco encapsulates some of the challenges the city faces in getting people to visit.
Presutti, the vice president of the Hotel Nikko San Francisco, was chatting with a woman in line for a coffee and asked whether the woman was from out of town. The woman actually lives on the East Bay and works downtown, but she only comes into the office about once a week.
When asked why, she said it was because nothing is open around where she works.
"I said, 'Well, the reason there's nothing open is because you're not here five days a week,'" Presutti said.
It was an "a-ha" moment for the woman, who said she hadn't thought about it like that.
"What I wanted to ask her was, 'Well, which way did you think of it then?'" Presutti said.
Highs and Lows
For years, San Francisco’s hotels enjoyed among the highest hotel rates in the U.S. thanks to a healthy combination of convention, corporate and leisure business with some international inbound travel thrown into the mix.
As with every major U.S. city during the pandemic, hotel demand in San Francisco took a nosedive during the early months of COVID-19. However, the city is taking longer to recover compared to the rest of the U.S. and even other top 25 U.S. hotel markets.
The main driver for San Francisco’s historically higher hotel rates was the number of citywide events that drove compression — occupancy levels at 90% to 95% — for the city’s hotels, allowing hoteliers to push rates higher. In a typical year, the city's hotels averaged about 850,000 hotel room nights from conventions and events, said Brett Allor, senior director of market strategy and research at San Francisco Travel Association. Bookings in those years ranged from 700,000 to more than 900,000 room nights.
This year, the city’s convention calendar is expected to generate roughly 670,000 room nights, toward the lower end of its normal range, he said. However, next year’s calendar is projected to generate only 400,000 room nights.
One of the main drivers behind the drop is cancellations, some of which happened before the pandemic due to concerns over how expensive San Francisco is as well as safety and street conditions. Several conventions have since booked in other cities, such as Las Vegas.
It’s difficult to quantify how much the city’s negative image has affected leisure and business travel demand, but the city is working on ways to address its problems and get the message out, Allor said.
San Francisco and nearby San Jose are some of the few hotel markets that that have not recovered to 2019 levels for average daily rate, said Emmy Hise, senior director of hospitality analytics for CoStar. On an absolute level, San Francisco hotels were able to charge some of the highest rates in the country pre-COVID.
“It’s harder to recover when it was already at the top,” she said. “Year over year, it’s been a positive trajectory.”
At the end of June, ADR in the market was down year over year, likely because the cybersecurity-focused RSA Conference held in June 2022 was held in April this year, creating a more difficult comparison.
Recently, tech company Alphabet announced it would move its Google Cloud Next Conference next year from San Francisco's Moscone Center to the Mandalay Bay Convention Center in Las Vegas.
Last week, the city hosted San Francisco-based software company Salesforce’s annual Dreamforce conference in September. In the past, that conference has drawn in so many business travelers that the city has had to bring in cruise ships as extra hotel rooms. The other major conference for the city is the annual J.P. Morgan Healthcare Conference in January, which returned to an in-person event this year after being held virtually in 2022.
“When they missed that in 2022, that ruined [hoteliers’] 2022,” Hise said.
The Dreamforce and J.P. Morgan Healthcare Conference are two events that San Francisco hasn’t lost — but it also can’t afford to lose them, she said.
Not every event on the citywide calendar is recurring, Hise said. Some of the major citywide events are booking six years out, leaving hoteliers to figure out how to fill in business until then. Small- and medium-sized events have shorter booking times, but it's unclear whether there will be enough to create compression.
“That’s why they’re so nervous about the forward-looking convention calendar because they’re not getting these citywide events that cause compression nights in the next five years,” she said.
Dealing with Down Demand
Presutti said hotel business in San Francisco is a three-legged stool — convention business, business travelers and international travelers.
“Right now, unfortunately, none of those are performing well,” she said.
With so many people working remotely, there’s less business travel coming into the city because no one is going to fly in to visit someone’s home in Walnut Creek, she said.
“Until we get that piece, people back in their offices, I’m not sure that business travel segment is going to show any signs of improvement,” Presutti said.
San Francisco historically has been a gateway city for Asian travelers, making up about 15% of Hotel Nikko’s business, but there hasn’t been any movement across the Pacific, she said. Domestic travel in Asian countries has increased, but international travel is still down.
The Beacon Grand Hotel opened June 30, 2022, after it was temporarily closed for renovation and repositioning from the Sir Francis Drake Hotel. The hotel has ramped up well over the past year, but occupancy is about 65% to 70% in a city used to more than 85%, said Sebastien Pfeiffer, general manager of the Beacon Grand.
“We’re happy where we are, but we still have a lot of work to do as a city as well as a hotel to get back to pre-pandemic levels,” he said.
Group demand has been a strong component of the hotel’s guest mix during convention times, but it’s also focused on leisure and business-transient demand, Pfeiffer said. Business travel is occurring at a higher rate in other cities, but is held back in part by the tech-heavy nature of businesses in San Francisco.
In terms of leisure travel, city visitation is about 80% of pre-pandemic levels, Pfeiffer said, adding the expectation is to recover to 2019 levels by 2025. European inbound travel has been strong, but travel demand from Asia hasn’t fully recovered.
“We look forward to welcoming that part of the world back to San Francisco because there’s obviously strong connections there,” he said.
It’s no secret San Francisco is behind in its recovery, and that’s because it shut down severely during the pandemic and was slow to reopen, said Ashley Gochnauer, general manager of the 1 Hotel San Francisco. When her hotel opened in June 2022, the timing was perfect as it was a turning point for the city, allowing for a steady ramp-up.
The 1 Hotel San Francisco leans heavily on corporate business during the week, she said. After building a solid base with that segment, the hotel's revenue managers have focused on growing demand from leisure travelers to fill out the weekend occupancy. Group has been returning as well.
As with other hotels after the pandemic, everything is still fairly short term, Gochnauer said. Bookings for groups and catering jobs can come in even just a week ahead of time, but overall volume is growing.
“It’s getting back to the really big programs,” she said. “We’re still working our way up to that, but positive signs for both group and corporate.”
Trying to Make Changes
There’s a massive amount of civic pride among hoteliers in San Francisco, Presutti said. They care about the city, and they’re aligned on the problems they face. The problem, though, is that many of the problems are out of their control.
“These are problems that are far bigger than any general manager’s going to be able to solve, or a mayor or a city for that matter,” she said.
San Francisco is an expensive city to do business in, and people can go to Las Vegas and spend less, she said. At the same time, San Francisco has authenticity, diversity and a culture that brings people back.
“What’s been difficult is we know the amount of compression we need to keep these hotels running, and we’re just not there,” she said. “It’s not for lack of trying, but we’re just not getting any traction.”
The city has made tremendous progress over the past two years, Pfeiffer said. The pandemic was a shock to the system, as it was for every city, but there has been a concerted effort to improve street conditions in a common-sense manner.
Something the city did to help people feel safer walking around was create the Community Ambassador Program that is supported by local businesses, he said. The ambassadors are trained to welcome visitors from out of town, give them directions, report emergencies and escort anyone to a destination within their neighborhoods.
The Union Square area has the Union Square Alliance, a business improvement district that funds activations during the holidays, he said. For example, the alliance puts up a Christmas tree and sets up an ice-skating rink to attract people to the area. In the summer, it hosts a series of free concerts.
“The goal is to activate these spaces and have people visit the neighborhood and have positive experiences,” he said.
San Francisco is one of the great convention cities, and hoteliers want to make sure conference attendees have positive experiences, Pfeiffer said. To improve the conference experience, hotels in the Union Square area contributed to a fund to bring in food trucks to give people different food options as they walk to meetings.
“[We wanted] to have some activation like that rather than having to walk several blocks to find a place to eat,” he said. “Again, making it easy and being friendly to our convention-goers is really important so they can get the best experience possible.”
The city of San Francisco has had some success in drawing more visitors, Allor said. The San Francisco 49ers' Levi's Stadium will host Super Bowl LX in 2026, and the city has created a new position that’s focused on attracting sports business.
San Francisco is working with other U.S. cities that have convention centers undergoing renovations, such as Austin and Denver, to temporarily host their events, he said. It has been working with groups who formerly met in San Francisco to get them to come back on a rotational basis, sharing these events with other markets.
SFTravel produced its first TV commercial using a $6 million grant from the state and federal government, Allor said. The commercial airs in some inbound commercial markets, including Chicago, Los Angeles, Atlanta and New York, as well as some international markets.
"We'll continue to use that and push it out," he said.
Public Image Problems
The stories about San Francisco appearing on the national stage create a disconnected feeling for those who live there, Gochnauer said. The city has its issues like any other, but the media is quick to grab onto what’s negative.
“As a San Francisco resident, I live 10 minutes from here,” she said, referring to the hotel at the corner of Mission Street and the Embarcadero. “I feel very safe.”
Hotel Nikko is in the Union Square area, a major shopping corridor in the city, Presutti said. Guests have told her they’re surprised how quiet it is for an area that has a lot of foot traffic. It's less busy than it has been in the past, but in a recent visit to Fisherman’s Wharf, she found the area packed with tourists and even some locals.
The guest feedback Presutti hears about the city is that travelers aren’t feeling at risk walking around. The city does have a problem with the number of people who are homeless, and that can make visitors to the city uncomfortable, but the guests aren’t saying they feel unsafe in the way they did before the pandemic.
The negative impression people have about San Francisco is widespread, and maybe the stakeholders haven’t done a good job talking about the city’s successes and improvements, she said.
Hotel Nikko has experienced growth every year, and while it’s not “crazy better,” performance is improving each year, Presutti said. When the city hit rock bottom, hoteliers thought they were going to be able to get out of it, but by 2023, it’s not close enough.
“It’s going to require this activation of the city again, frankly, and we need our city leaders, the public sector and private sector to get back in the game and get these people back in the city,” she said. “That’s what’s going to make San Francisco robust again.”