The Case for San Francisco's Hotel Market

“Perception is reality,” the saying goes, and right now the perception of San Francisco is not good. It's hard to counteract the dreaded “doom loop” narrative that describes an empty downtown with restaurants and bars closed as office workers stay away. And yet, for San Francisco, the saying could be updated to: “Your perception is not the reality.”

Earlier this month, national directors for CoStar gathered in our San Francisco office to get a first-hand impression. After all, we're always writing about the city and all its commercial real estate asset classes. We thought it only fair to experience the statistics we write about.

The team from the nonprofit SF Travel tourism group and the general manager of the Fairmont Hotel were kind enough to share their perspectives over lunch about where the city is today and what is on the horizon. We took the cable car up California Avenue just to start the trip out with a real San Francisco vibe. City tourism officials discussed a tough meeting calendar for the Moscone Center in 2024, but also the very short lead times for groups in general.

I had heard anecdotally that some meetings are now planned in-the-month-for-the-month, something that was unheard of before 2020. But the two largest hurdles for the recovery of the hotel market in the city were the lack of office workers downtown, which makes the unhoused population stand out and frames the negative perception of the city in the mind of planners and CEOs who control travel budgets.

During an afternoon-long walking tour, we got a first-hand look and feel for the lack of office workers. Granted, it was a Monday and the Monday before Labor Day, no less. The mood downtown can only be described as “quiet.” But other descriptors such as “unsafe” were certainly not true. We just walked through a downtown of a major metropolitan area that had the foot traffic to be expected during a holiday week.

Ground floor retail occupancy was spotty, but interestingly, some major luxury brands such as Breitling and Hermes have expanded their footprints. The number of homeless people was not in any way different from the counts in other major cities I have visited lately. True, we avoided the Tenderloin district and I cannot comment on conditions there, but I assume an average business traveler would have no reason to go there anyway.

The rooftop garden on top of the transit center near the Salesforce Tower is a gem, but the lack of office workers was apparent, given how little foot traffic we observed. As a visitor, the lack of crowds makes the city unique right now as you have many areas almost to yourself. Food experiences were excellent, as expected, and there were no lines to speak of.

From a meeting perspective, this is a unique point in time in which planners and attendees can experience a city that has all the attributes of a major market, but group room rates are only up 4% from 2019. Adjusted for inflation, that means group rooms are actually cheaper now than they were before the pandemic.

Couple that with a newly renovated convention center, ample hotel rooms and easy air access, and San Francisco should be part of the consideration when considering locations to visit. But it all begins with changing perceptions, and the easiest way to do that is to just go. You may be surprised.

Jan Freitag is the national director for hospitality market analytics at CoStar.

The opinions expressed in this column do not necessarily reflect the opinions of Hotel News Now or CoStar Group and its affiliated companies. Bloggers published on this site are given the freedom to express views that may be controversial, but our goal is to provoke thought and constructive discussion within our reader community. Please feel free to contact an editor with any questions or concern.

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