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New hotel activity here down, but openings highest in Southern California

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San Diego County had a 56 percent decrease in the number of hotel rooms opened this year, but is still outpacing the rest of Southern California in terms of hotel construction.

According to an Atlas Hospitality Group report, San Diego County will have opened 790 rooms in three new hotels by the end of the year, compared to 1,777 new rooms in eight hotels in 2003.

Hotels opened this year included the 512-room Omni Hotel San Diego attached to Petco Park, the 210-room Estancia Hotel in La Jolla and the 68-room Staybridge Suites in San Diego.

When asked about the Omni, Atlas President Alan Reay said it is faring extraordinarily well. "This part of downtown is hotel heaven right now," he said.

As for hotel rooms under construction, San Diego still leads the state despite a 6 percent decline year to year. This translated to 1,325 rooms in six hotels, compared to 1,409 rooms in four hotels in 2003.

In 2004, the number of hotels in the planning stage in the county declined by 32 percent from 50 in 2003 to 34, and the number of rooms involved dropped by 33 percent from 11,119 rooms in 2003 to 7,455 (see California Hotel Development Summary chart below).

"The big decline we saw everywhere was in the number of projects in the planning stages," said Reay. "Developers attempted to change the use to condos or mixed-use with retail."

Reay said that hotel financing has always been a difficult business, but emphasized if the viability of a project isn't that strong to begin with, the financing might never materialize. He added that the prospect of higher interest rates is another factor that may slow down the capital.

However, Reay said, San Diego is in a particularly strong position because of its location, and the fact that it still could use more hotels.

He adds, however, that San Diego's position could be eroded somewhat if the city's Transient Occupancy Tax (TOT) rate is raised from 10.5 percent to 13 percent as has been proposed. "It would impact the meeting and convention business. It would have the effect of making San Diego less competitive."

San Diego County hotel rooms in the planning stage include a 462-room addition to the Harrah's Rincon Casino and Resort in Valley Center, the 265-room YMCA on West Broadway and the 235-room Hotel Solamar in East Village, both in downtown San Diego, the 200-room Hilton Garden Inn in Rancho Bernardo, the 120-room Homewood Suites in Sorrento Valley, and the 48-room Tower 23 Hotel in Pacific Beach.

Reay said these hotels should each do well due to strong demand. He also said another hotel, a 200-room property that is expected to be a Marriott adjacent to the California Center for the Arts in Escondido, should also be strong because of its excellent location.

In the meantime, San Diego County wasn't alone in seeing a significant decline in hotel construction. In fact, such a phenomenon is happening throughout Southern California. Atlas reported that lodging construction was off by about 38 percent during the first half of the year in this portion of the state.

Several possible reasons were cited. These included a still-anemic economy that may be frightening lenders, the conversion of prospective hotel projects into other uses such as residential or retail, entitlement and/or environmental issues, and not a strong enough brand to flag the hotel.

In Riverside County, 47 percent fewer rooms will have opened in 2004 versus 2003 (175 rooms in two hotels this year compared with 331 rooms in three hotels last year).

The hotels that opened in 2004 included the 99-room Hampton Inn and the 76-room Temecula Springs Resort, both in Temecula.

In terms of number of new rooms under construction, Riverside County saw the second largest increase in the state this year, with a 69 percent increase to 1,058 rooms in six hotels compared to 627 rooms in three hotels in 2003.

The number of hotel rooms in planning decreased by 65 percent (1,318 as compared with 3,720).

This year's survey showed that every area experienced a decline in the number of new rooms in the planning stages, ranging from the 11 percent in San Bernardino County to the 64.6 percent decline in Riverside County.


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