San Francisco's commercial real estate market is taking another blow, this time to the city's already struggling hospitality sector.
Two of the world's largest tech companies, Meta and IBM, have decided to pull out of plans to host major conferences at the city's Moscone Center at 701-747 Howard St. in downtown San Francisco.
The IBM-owned software company Red Hat will move its annual technology summit from San Francisco to Denver in 2024 and Orlando in 2025. The four-day event typically generates demand for about 20,000 hotel rooms, and a Red Hat spokesperson declined to comment on whether the event would return to San Francisco for future years.
The cancellations by Meta and IBM's Red Hat come as the region, already struggling with a lack of returning office workers and tourists and record-high vacancy rates and other pandemic-related challenges, works to recover. With an office vacancy rate of more than 26% in San Francisco's financial district, some owners are considering alternative uses for their properties.
Events at the 580,000-square-foot Moscone Center, located at the heart of downtown San Francisco, typically help fill nearby hotel rooms and generate foot traffic for restaurants and retailers, which have suffered amid steep declines in business recently. The city and county of San Francisco own the convention center.
“We generally prefer to alter between east- and west-coast-friendly locations for Red Hat Summit to best accommodate our customers and partners,” the spokesperson said in a statement to CoStar News. “Sometimes, even when we make plans far in advance to host an event in a given city, we have to change plans based on date conflicts on our end or other circumstances.”
On a similar note, Facebook parent company Meta canceled plans to host its Meta Business Group Summit 2024 at the Moscone Center, according to the San Francisco Travel Association. The association books events at the facility that sits on 20 acres.
Meta did not immediately respond to CoStar News' requests for comment about the 2024 conference, which had been expected to generate demand for more than 16,250 hotel rooms.
Hotel room bookings are typically an indicator of the health and business travel activity in San Francisco. However, a complicated mix of ongoing remote work trends, low office utilization rates, socioeconomic challenges such as homelessness and the city's worsening reputation on the global stage has left the Moscone Center struggling to attract the conference business it needs to fully return to pre-pandemic levels of activity.
No Turnaround
Throughout the pandemic, San Francisco had among the steepest declines in business travel revenue of any major metro in the country, according to data from the American Hotel & Lodging Association. Those problems have continued, as more than 2 million hotel room bookings were lost or canceled for both 2023 and 2024.
The number of conferences and room nights booked for the year ahead provides only a murky picture as to whether the outlook will improve.
The Moscone Center expects to host 36 conferences this year that will result collectively in about 663,000 hotel room bookings, according to the local travel association. That's significantly higher than the roughly 17,000 rooms booked in 2021. However, only 22 events and 462,000 definite room nights are on the books for next year.
“Street conditions and pricing continue to negatively impact the pace [of recovery],” Brett Allor, senior director of market strategy and research at San Francisco Travel, said at the association's marketing conference in March. “We’re constantly working on retaining business rather than trying to win new business.”
San Francisco's hospitality market "remains one of the least recovered hotel markets in the United States," according to CoStar data. While hotels are posting higher daily rate averages, the city is one of the few markets where average-daily-rate figures have not recovered to 2019 levels.
Negative national press coverage has deterred leisure visitors and convention center events. Also, the city's heavy tech presence has meant corporate travel has been muted. A delay in the return of robust international travel activity has hurt the city's hospitality business, too. In fact, a CoStar analysis forecasts that San Francisco's hotel occupancy rates are unlikely to recover within the next five years.
Even so, San Francisco Travel executives are staying optimistic.
"The good news is that every year after 2024 shows steady growth," Nicole Rogers, SF Travel's executive vice president and chief sales officer, said in a statement, adding that "2028 and beyond [are] trending to be above 90% of average."