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SD hotel industry strong, but with pitfalls

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The state of San Diego’s hotel industry was the topic of “An Extraordinary Year Ahead,” the 2015 Lodging Industry meeting Friday at the Hilton Garden Inn in Del Mar Heights.

Although the hotel industry is expected to be strong for at least the next couple of years, some challenges lurk, panelists agreed.

Alan Reay, president of the Atlas Hospitality Group, didn't have exact figures, but said if the thousands of rooms proposed for Oceanside and Carlsbad were built, it would double the number of exisitng rooms there.

Hotels aren't only competing with each other. Reay and Robert Rauch of RA Rauch & Associates, who owns the Hilton Garden Inn, warned that the Airbnb phenomenon will probably affect San Diego's lodging industry, as it has in other parts of the country.

San Francisco-based Airbnb calls itself a "community marketplace for people to list, find and book unique accommodations around the world — online or from a mobile phone."

"Whether an apartment for a night, a castle for a week, or a villa for a month, Airbnb connects people to unique travel experiences, at any price point, in more than 34,000 cities and 190 countries,” the company states.

“And with world-class customer service and a growing community of users, Airbnb is the easiest way for people to monetize their extra space and showcase it to an audience of millions."

What is good news for Airbnb may be bad news for hotel owners trying to fill their rooms.

"Companies like Airbnb have a huge advantage. They don't have the overhead, including the payroll, the taxes, and they don't have the [Americans with Disabilities Act] lawsuits," Reay said.

The hotel industry faces other challenges. Reay said that with some communities around the state approving new minimum wages for hotel workers, some hotel owners fear their payrolls might balloon out of control.

"Now, in some places, you have to pay $15 or even $20 per hour," Reay said.

The good news, Rauch said, is that San Diego County finished 2014 with a 74.6 percent occupancy rate — a figure that is projected to increase to 75.5 percent by the end of the year.

Rauch said San Diego County ended last year with an average daily room rate of $142.58. This figure is projected to reach more than $150 per room by the end of the year.

"Anybody who isn't raising rates isn't paying attention," Rauch said.

"There's still room for revenue growth," Reay added.

Rauch said this is in spite of the euro plummeting against the dollar, scaring away Europeans tourists. Many visitors, he said, are from China.

Looking ahead, Rauch said the hotel industry generally will be strong this year and next, "before coming in for a soft landing in 2017."

Rauch said the surplus of hotel rooms expected over the next two years will cause occupancy to dip slightly in 2017. He said he doesn't expect rates to decline soon, however.

The revenue per available room will be huge in 2015, Rauch said, adding that he expects it to be among the best years the industry has had.

Both Reay and Gary London, president of the London Group who moderated the program, said that while the industry may be strong, hotel owners must ensure they don't charge fees that may ultimately hurt their businesses.

For example, Reay said, charging for Internet access is a bad idea.

"I was in Europe when someone was charged $2,800 euros for three days of Internet on his three devices," Reay said. "It was incredible."

"I don't understand it. That's such a bad way to start a visit," London said.

Reay said another punitive charge that can backfire is the resort fee.

"People go to Hawaii to stay at a resort, and then they have to pay that,” Reay said. “Why do you have to have a resort fee?"

Whether or not these fees are being assessed on guests, Reay said investors are continuing to pay record numbers to buy hotels. He said while it may not be surprising that upscale hotels in Manhattan are garnering as much as $2 million per room, he was floored that the 47-room Malibu Beach Inn recently sold for $80 million.

"That's about $1.7 million per room," Reay said. "There's just a tremendous amount of capital chasing too few deals."

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