COMMENTARY | COLUMNISTS | ROBERT RAUCH

Emerging trends in San Diego's hospitality industry for 2007

Some hotel projects that were anticipated to open in 2006 will now open in 2007. According to my latest count, at least 2,000 rooms will be added, nearly a 4 percent increase in the county's total inventory. Projects opening in 2007 include: the Hilton Garden Inn San Diego/Del Mar and the Grand Del Mar Resort and Spa in the Del Mar area; the Diegan Hotel, Hard Rock Hotel, Sofia Hotel Keating Hotel and Ivy Hotel downtown; and the Homewood Suites by Hilton and Marriott Courtyard in the airport submarket. Additional rooms include the Carlsbad Golf Resort and La Costa Resort and Spa room additions in Carlsbad. My apologies if I missed one.

Although many of these rooms will not be added until late 2007, they are worthy of mention. Assuming on average they open midyear, an average increase in supply of 2 percent will be created, well ahead of the 2006 supply spigot of less than 1 percent. As a hospitality operator in San Diego, I thought I would comment on how these new supply and current trends might affect us this coming year. These trends include but are not limited to:

Demand. According to Smith Travel Research, gross domestic product and the consumer price index will be up about 2.7 percent in 2007. The firm also anticipates corporate profits to increase 4.3 percent and is forecasting an jump of 6.5 percent in average daily rates for hotels, with demand up 2.4 percent and supply up 1.6 percent. In San Diego, demand is likely to be consistent with the 2006 growth of 1.5 percent, but the supply number should be close to 2 percent. This will cause flat or slightly declining occupancy levels; however, rates should rise at least 5 percent. Based on these numbers, there should also be some growth in demand for restaurants and event companies.

Hotel profits. Due to the strength of the economy, U.S. hotels posted healthy increases in occupancy and room rates during the first half of 2006, according to PKF Consulting. A 9.7 percent gain in total revenue was largely offset by a 7.8 percent increase in operating expenses. What can we do? Avoid "throwaway brands" that cause revenues to rise at a lower rate than the expenses, be careful with our use of third-party distribution services and lock in good interest rates and loan leverage while they exist.

Construction Costs. Construction costs have escalated dramatically in the past few years, yet they seem to be stabilizing this year. According to the Associated General Contractors of America, construction costs spiked dramatically in 2004. The annual increase for construction materials in general was approximately 10 percent in 2004, followed by 6 percent and 9 percent increases in 2005 and 2006, respectively. This will require developers to very carefully look for value-engineering opportunities and work hard to adhere to tight project timing to avoid the escalating costs.

Labor shortages. There is a growing shortage of qualified and skilled employees nationally; however, we are blessed with a hospitality and tourism management program at San Diego State University. As such, we have a great resource for entry-level managers and skilled employees. To utilize the skills of these motivated students, it does require scheduling flexibility.

According to a recent International Society of Hospitality Consultants (ISHC) report, "In today's environment, operators are increasingly finding they must compete for workers as hard as they compete for customers. Developing a positive work environment with real opportunities for advancement, combined with creative strategies for recruiting and improving employee productivity will all be increasingly essential skills as the work force continues to shrink in the foreseeable future."

Technology changes. This is perhaps the one that changes so quickly it is hard to keep up. Revenue management, energy management, property management, point-of-sale and more systems are transforming rapidly. The trend of centralized revenue-management teams and centrally hosted systems allows for highly qualified technicians to provide more productivity and security than would be available to an individual business. This trend is likely to continue.

Guest-profile data is fast becoming a frequent target for identity theft and legislation such as Sarbanes-Oxley, which holds corporate officers personally accountable for the accuracy of their financial data. According to the ISHC report, many systems do not provide audit trails of which user changed key configuration parameters. Hotels and restaurants must enforce control over the sharing of IDs and passwords among users to determine who logged in, if nothing else.

Changing demographics. It is important for hoteliers and restaurateurs alike to adopt a more universal design approach that includes lower beds and brighter lighting in hotels and larger fonts on menus in restaurants -- without losing the "cool" factor that draws younger consumers.

"The future of travel and hotel distribution will most likely be marked by a constant state of evolution rather than a few major revolutions," according to Henry Harteveldt, vice president of Forrester Research. "By 2021, what passed as merchandising in 2006 will look prehistoric."

The first of America's baby boomers turned 60 years old earlier this year. For hoteliers and restaurateurs alike, this means changing the way we have traditionally marketed to seniors. According to my friend and boomer sage Phil Goodman, boomers will never grow "old." Since I am a "boomer" who continues to play baseball, I agree with Phil; however, the younger markets of generation X and Y are now entering management positions and peak spending years as well. We must concurrently cater to multiple age markets or suffer the consequences. Lastly, we should all read the short book, "Who Moved My Cheese," by Spencer Johnson because change is very rapid today.


Rauch serves as general manager/partner, Homewood Suites by Hilton and Hilton Garden Inn San Diego/Del Mar. He is chairman of the San Diego Hotel and Motel Association, vice chairman, San Diego North Convention & Visitors Bureau, serves on the board of directors of the San Diego Convention Center Corp., and teaches entrepreneurship at San Diego State University. He can be reached at robert.rauch@sddt.com. Comments may be published as Letters to the Editor.

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