Population Swells
In San Francisco, a booming job market has helped boost the city’s population by 5.9 percent over four years, according to the latest U.S. Census Bureau figures. That compares with a 4.2 percent gain statewide.
The city’s workforce growth has led developers to focus on building office projects, said David Loeb, a lodging analyst at Milwaukee-based Robert W. Baird & Co. More than 8 million square feet (743,000 square meters) of office space is scheduled for development in the next four years, according to CBRE Group Inc. San Francisco may surpass Manhattan as the priciest U.S. office market by the end of this year, the brokerage said this month.
Residential projects are also popular, with San Francisco apartment rents averaging $2,280 in the first quarter, twice the national average, according to research firm Reis Inc.
“There’s a ton of office and a ton of residential going up because there’s a lot of job growth,” Loeb said.
While that growth is helping buoy hotel demand, many developers eschew lodging projects because of the high expenses associated with staffing a hotel in San Francisco. The city’s hotel-room count grew just 0.3 percent in the first five months of the year, compared with a 3 percent increase in New York, according to data compiled by Robert W. Baird.
Labor Costs
“If you want to build something in San Francisco today, the economics, such as labor costs and zoning, essentially favor other asset classes,” Loeb said.
The technology industry that so far has helped San Francisco may also prove its weakness should there be a decline in coming years, said Patrick Scholes, an analyst at SunTrust Robinson Humphrey Inc. In the shorter term, the renovation of the Moscone Center convention space is likely to hurt lodging demand, said Pacioni of the Marriott Marquis. He expects 2017 to be the worst year.
“The city is working with groups to keep the impact as low as possible -- that’s why it’s taking four years to get done -- but it will definitely affect hotel demand,” he said.