Hotel Intelligence San Francisco

Transcription

1 Hotel Intelligence San Francisco July 2013 Market Insight San Francisco s lodging market continues to power forward with revenue per available room (RevPAR) growth of 13% in 2012, driven by growth in average daily rates. In YTD May 2013, RevPAR is up 12%. San Francisco recorded $700 million in hotel transaction volumes in 2012, surpassing the previous peak of 2007, and deal volume in 2013 is expected to mark a further slight uptick.

2 Contributors John Strauss Managing Director Andrea Grigg Senior Vice President James Stockdale Senior Vice President Lauro Ferroni Vice President Emily Lustig Analyst Jones Lang LaSalle s Hotels & Hospitality Group serves as the hospitality industry s global leader in real estate services for luxury, upscale, select service and budget hotels; timeshare and fractional ownership properties; convention centers; mixed-use developments and other hospitality properties. The firm s more than 265 dedicated hotel and hospitality experts partner with investors and owner/operators around the globe to support and shape investment strategies that deliver maximum value throughout the entire lifecycle of an asset. In the last five years, the team completed more transactions than any other hotels and hospitality real estate advisor in the world totaling nearly US$25 billion, while also completing approximately 4,000 advisory and valuation assignments. The group s hotels and hospitality specialists provide independent and expert advice to clients, backed by industry-leading research. For more news, videos and research from Jones Lang LaSalle s Hotels & Hospitality Group, please visit:

3 Hotel Intelligence San Francisco July Hotel Intelligence San Francisco San Francisco is a major gateway to Europe, Asia, and Australia. The San Francisco International Airport is the seventh busiest airport in the U.S. The San Francisco lodging market posted the second highest year-over-year growth in average daily rate in 2012 and boasts one of the highest occupancy levels of U.S. top-25 markets. The city is home to numerous internationally renowned tourist attractions, and the economy and commercial real estate markets are thriving with the influx of technology companies, including Zynga, Salesforce, and Twitter. According to the latest data provided by San Francisco Travel, the city hosted 16.5 million visitors in 2012 that spent a record-breaking $8.9 billion with local businesses. After strong performance in 2011 with the highest national revenue per available room (RevPAR) growth of 19.8%, San Francisco s lodging market continued to power forward with RevPAR growth of 12.8% in Concurrently, the city exhibited the second highest year-over-year growth in average daily rate (ADR) nationally. For 2013, we anticipate the San Francisco/San Mateo market to record 10-12% RevPAR growth, attributable to strengthening visitor volumes, growing convention room nights, and minimal new supply. Yearto-date May 2013, the market has posted 11.9% RevPAR growth, according to Smith Travel Research. San Francisco expected to see 10-12% RevPAR growth in 2013 According to San Francisco Travel, there are approximately 33,600 rooms in San Francisco, and roughly 20,000 of these rooms are within walking distance of the Moscone Center, the city s convention center. San Francisco posted higher occupancy rates than most other U.S. gateway markets at 80.4% in 2012 (for San Francisco and San Mateo counties). Figure 1 San Francisco / San Mateo lodging performance YTD April 2013 Figure 1 San Francisco / San Mateo lodging performance YTD May 2013 $180 $160 90% 80% ADR and REV PAR (U.S. Dollars) $140 $120 $100 $80 $60 70% 60% 50% 40% 30% Occupancy (%) $40 $20 20% 10% $ YTD May 2012 YTD May % Source: Smith Travel Research Note: Data is based on all hotels in MSA ADR RevPAR Occ Source: Smith Travel Research Note: Data is based on all hotels in MSA

4 2 Hotel Intelligence San Francisco July 2013 Figure 2 Record air passengers in 2012 at 22.2 million deplanements San Francisco International Airport (SFO) is the seventh busiest airport in the U.S. in terms of passenger volume, offering nonstop service to more than 70 destinations in the U.S. and 32 international cities. In April 2011, SFO unveiled its redesigned Terminal 2. In 2012, passenger deplanements reached the highest level on record at 22.2 million, driven by 9% year-over-year growth in domestic traffic and a 6% year-over-year increase in international traffic. Passenger deplanements through year-to-date March 2013 have held steady. In April 2013, China Eastern Airlines launched a daily non-stop flight to Shanghai from SFO, which includes continuing service to Wuhan, China three days per week. The market also saw a surge of visitors from Latin America, which represented year-over-year growth of nearly 35% in 2012, followed by Asia/Middle East and Europe at 5% and 4% year-over-year increases, respectively. Growth in passenger arrivals has historically been tightly correlated to change in RevPAR in San Francisco. Figure 2 San Francisco International Airport (SFO) passenger traffic San Francisco International Airport (SFO) passenger traffic Convention center expansion planned for Moscone Center Located in downtown San Francisco, Moscone Center is California s third largest convention center in terms of prime exhibit space. Built in 1981, the center is known for hosting blockbuster events such as Oracle OpenWorld which sells out area hotels for an entire week, Macworld Expo, the American Bar Association s annual meeting, the Game Developers Conference, the Worldwide Developers Conference and JavaOne. In June 2012, Moscone Center completed the final phase of a $56 million renovation, which encompassed cosmetic upgrades as well as infrastructure upgrades. Following the completion of the comprehensive renovation, in October 2012, the Moscone Center announced its LEED Gold certification. Total room nights booked at the convention center have seen a rapid recovery and remain very strong at over 900,000 for the next three years with significant room for growth thereafter. The Moscone Center recently announced a $500 million expansion, which will add an additional 350,000 to 400,000 square feet of space. Limited new supply; owners continue to invest in renovations Total Deplanements (Millions) Domestic International Number of Flights Source: San Francisco International Airport Source: San Francisco Note: International Number Airport of flights only include commercial airlines and charter flights with over 60 seats Note: Number of flights only include commercial airlines and charter flights with over 60 seats SFO passengers by origin (2012) Figure 3 SFO passengers by origin (2012) Domestic Europe Asia/Middle East Australia/Oceania Latin America Canada 6% 1% 2% 3% 10% 78% 400, , , ,000 80,000 0 Number of Flights Other than the 22-room Inn at the Presidio, which opened in April 2012, no other new supply has entered San Francisco since 2008, a stark contrast to other major U.S. gateway markets. New hotel development is currently cost prohibitive and the general lack of entitled sites makes hotel development difficult. As a result, only one hotel is under construction, with several additional hotels in planning phases. Construction has begun on the 174-room Hampton Inn. Recently, San Francisco s Planning Commission approved the city s newest proposed hotel project in SoMa. The 220-room hotel, designed by Axis Architecture + Design, will likely be a limited service option costing approximately $250,000 per room to build. Across from the Warriors proposed new stadium, there is a planed two-tower hotel with commercial space and residential tower. The lack of recent supply openings affirms the high barriers to entry in the San Francisco hotel market and explains investors strong interest in acquiring existing hotels, as seen from the high level of transactions during the past two years. With the strong lodging performance, hotels in the market have undergone upgrades and renovations during the last two years including at the Mandarin Oriental, Grand Hyatt, and Hilton Union Square. Source: San Francisco International Airport

5 Hotel Intelligence San Francisco July Figure 4 San Francisco: Proposed supply additions* Figure 4 San Francisco: Proposed supply additions* Under construction Project Location Rooms Expected Opening Year Positioning Hampton Inn 952 Mission Street Upper Midscale Recent Hotel Openings Hotel Location Rooms Opening Year Positioning Inn at Presidio Main Post, Presidio 22 April 2012 Luxury *Projects and dates are subject to change Source: Jones Lang LaSalle (based on publicly available information) *Projects and dates are subject to change Figure Source: 5 San Jones Francisco Lang hotel LaSalle renovation (based projects on publicly available information) Figure 5 San Francisco hotel renovation projects Property Rooms Total Cost ($M) Cost per Key Completed Date Improvements Marriott Marquis 1,499 $30.0 $20,000 Expected to begin Jul.13 Guest rooms, suites, concierge lounge, and ADA upgrades Grand Hyatt 659 $70.0 $106,200 Jan.13 Multi-phased renovation included a new Grand Foyer, refresh of meeting rooms & Conference Center, guest room renovation, repositioning of restaurant & lounge, and redesign of the front drive and lobby Hotel Zetta (former Hotel Milano) 116 $13.0 $112,100 Feb.13 Closed in November 2012, and reopened February 2013 as the Hotel Zetta with 8 additional guest rooms Mandarin Oriental 158 $15.0 $94,900 Sep.12 Refurbishment of all guest rooms and suites, newly designed lobby and meeting space, and construction of new spa and new restaurant/bar called the Brasserie S&P Hotel Adagio 171 $7.0 $40,900 Aug.12 Refurbishment of guestrooms and public spaces, expanded meeting and event space, and introduced newly-concepted restaurant and lobby-level bar Hilton San Francisco Union Square 1,908 $51.0 $26,700 Jun.12 Makeover of 550 rooms, expansion of meeting rooms, and renewal of hotel's public areas. The hotel is expected to begin the next phase of guest room renovation in January 2014 W San Francisco 404 N/A N/A Mar.12 Transformation of social spaces: Living Room, Living Room Bar, Upstairs Bar, Welcome Desk, and new signature restaurant Hyatt Fisherman's Wharf 313 $1.0 $3,200 Feb.12 Renovation of meeting and event space Ritz Carlton 336 N/A N/A Jan.12 Renovated lounge and revamping of the restaurant, Parallel 37 Hotel Diva (a Personality Hotel) 116 $2.0 $17,200 Dec.11 Renovated guest rooms with newly designed bathrooms, common areas and property's exterior Sir Francis Drake 416 $30.0 $72,100 Oct.11 Renovation of guest rooms and lobby, and reopened its Harry Denton's Starlight Room Marriott Fisherman's Wharf 274 $4.0 $14,600 Oct.11 Lobby upgrades, improved and new meeting space, redesigned restaurant, and incorporation of nautical theme Source: Jones Lang LaSalle (based on publicly available information) Source: Jones Lang LaSalle, based on publicly available information The Hilton Union Square completed a $51 million redevelopment, which included a makeover of guestrooms in the hotel s original building and the expansion of the 20,000-square-foot ballroom and 31 additional meeting rooms. The Grand Hyatt San Francisco has completed a $70-million renovation with a refurbished guestroom product and upgrades to meeting facilities, and the repositioning of the main restaurant. Under a new owner, the Mandarin Oriental completed a renovation after a closure for a brief period during March Renovations take a targeted approach As the Bay Area rebounds from the slowdown of , owners are approaching renovations with a more studied approach with an emphasis on high guest impact and ROI. The focus is to be selective, and to lengthen cycles in the approach of renovations. The emphasis remains on selective re-use of FF&E in guest room renovations within a refreshed design, consolidation and re-concepting of F&B, creating meeting space that is flexible and meets the needs of meeting planners, and providing lobbies with differentiated branding personalities. Construction costs increasing As design, construction and FF&E manufacturers downsized during the slowdown, they too are wary about growing too quickly again and are cautious in their hiring approaches. As renovation work picks up, there is beginning to be a tightening in the market as general contractors are getting busier across all sectors. Subcontractors, especially in the electrical, plumbing, mechanical and carpentry trades are all getting busier and pricing is increasing. Fees for general contractors dipped to as low as 1% in 2009 and 2010 but are now rising to 3-5%. Diversified economy with strength in technology sector The Bay Area s economic strengths include its role as a national leader in computer technology, pharmaceuticals, and medical supplies. These high-paying industries help the Bay Area s workforce generate an annual economic output of $122,000 per employee, 26% above the national average. While the region is best known for its technology sector, the Bay Area economy is actually one of the most diverse in the country, with significant activity in the international trade, financial services, and retail sectors. Taking into account both Gross Metropolitan Product and industryconcentration figures, the Bay Area is equally or more diversified than most other major cities, including New York and Chicago.

6 4 Hotel Intelligence San Francisco July 2013 Figure 6 San Francisco-Oakland-Fremont, CA economic and demograpic indicators Figure 6 San Francisco-Oakland-Fremont, CA economic and demograpic indicators Indicator F 2014F 2015F 2016F Real gross metro product ($MM) 291, , , , , , , ,372 Percent change -4.5% 1.7% 2.6% 3.6% 2.2% 2.7% 2.9% 2.5% Unemployment rate 9.6% 10.3% 9.4% 8.2% 7.5% 7.2% 6.6% 6.1% Population (000's) 4, , , , , , , ,634.7 Source: IHS Global Insight Key development projects and events 34th America s Cup Host City: San Francisco will host the 2013 America s Cup international yacht racing competition, including the finals. America s Cup is the third largest sporting competition currently in existence behind only the Olympics and the World Cup. The competition is expected to generate a total economic impact of $1.4 billion, and $156 million to the accommodations sector alone. We therefore expect hotel performance statistics for the summer months to show a big year-over-year lift. Warriors Redevelopment: The Golden State Warriors plan to build a new sports and entertainment arena on the waterfront, in time for the NBA season. The project will be located at Piers and includes 90,000 square feet of retail space. Moscone Centers Expansion: In February 2013, the San Francisco Board of Supervisors approved the creation of the Moscone Expansion District, which will provide the majority of funding for the Moscone Center s expansion. The $500-million project is anticipated to add 350,000 to 400,000 square feet, including 80,000 square feet of contiguous space. Construction is anticipated to begin in late 2014 with completion anticipated in Transbay Transit Center: The transportation project is anticipated to transform downtown San Francisco by creating a Grand Central Station of the West. The $4 billion project will connect eight Bay Area counties and the State of California through 11 transit systems and is anticipated to be completed in Transaction volume continues to rise With a large proportion of independent and smaller hotel properties, San Francisco has often not recorded the lofty transaction volumes achieved by other gateway cities such as New York and Washington, D.C. with the exception of the year 2006 when nearly 7,000 hotel rooms changed hands. Figure 7 San Francisco transaction volume F Figure 7 San Francisco transaction volume F Transaction activity was robust during the first half of 2011 as investors saw rebounding profits in the aftermath of the economic downturn. During the summer and fall of 2011, the bond rating downgrade and the European financial crisis stymied transaction momentum nationwide, yet the San Francisco market surpassed its 2007 record with sales in excess of $680 million. $1,800 $1,600 $1, : Major deals include: Westin St. Francis ($440M), Argent ($178M), Four Seasons ($130M), Park Hyatt ($126M) 2011: Major deals include: Westin Market ($170M), JW Marriott ($96M), Argonaut Hotel ($84M) $300,000 Transaction Volume (in Millions) $1,200 $1,000 $800 $600 $400 $200 $0 2009: First major deal since recession: W Hotel ($90M) $200, : Major deals include: Fairmont ($200M), Parc 55 ($176M), Hotel Palomar ($58M) F Transaction Volume Average Price per Key Source: Jones Lang LaSalle Note: Hotel transactions $5MM+; excludes casino sales; excludes hotels that are sold as part of multi-state portfolios above $500MM Note: Hotel transactions $5MM+; excludes casino sales; excludes hotels that are sold as part of multi-state portfolios above $500MM Source: Jones Lang LaSalle $100,000 $0 Average Price per Key

7 Hotel Intelligence San Francisco July Figure 8 Recent San Francisco hotel transactions Figure 8 Recent San Francisco hotel transactions Contract Date Property Name Price Room Count Price per Room Buyer Name Jun-13 Ritz-Carlton San Francisco $161,000, $479,200 Thayer Lodging Group Jun-13 Vantaggio Suites Cosmo $29,500, $197,000 RLJ Lodging Trust Jun-13 Hyatt Fisherman s Wharf* $103,500, $331,000 Chesapeake Lodging Trust Feb-13 Holiday Inn Express & Suites Fishermans Wharf $60,500, $240,000 Summit Hotel Properties JV IHG Dec-12 Clift Hotel $120,000, $323,000 Hospitality Properties Trust Nov-12 Hotel Rex $29,500, $314,000 DiamondRock Hospitality Oct-12 Hotel Palomar San Francisco* $58,000, $296,000 Pebblebrook Hotel Trust Mar-12 Parc 55 (75% stake) $176,300, N/A Blackstone Mar-12 Fairmont San Francisco $200,000, $338,000 Woodridge Capital Partners *Jones Lang LaSalle acted as advisor to seller Source: Jones Lang LaSalle The momentum continued as transaction volume in 2012 surpassed the 2011 record at $700 million with several major sales, including the Fairmont, Parc 55, and Clift Hotel. Off-shore investors, primarily Asian investors, continue to have substantial interest in the market, and tend to be long-term holders who pursue fee simple, unencumbered or luxury asset transactions. Year-to-date through June 2013, San Francisco has recorded $355 million in transaction volume with the sale of the Ritz-Carlton San Francisco, the Hyatt Fisherman s Wharf and the Holiday Inn Express & Suites at Fisherman s Wharf. Transaction volume in 2013 is anticipated to rise by another 5% to reach $750 million. The ongoing strong activity will be driven by further growth in San Francisco hotel fundamentals, limited new supply, strong convention center activity, and REITs penchant for the city which will motivate existing owners to consider selling. During the last two years, the San Francisco hotel investment market has been dominated by purchases by private equity funds and REITs. Pebblebrook Hotel Trust, for instance, has been active in the market with three hotel purchases since San Francisco s accessibility as a gateway city, the thriving economy with the technology boom, and the robust lodging performance is anticipated to continue to position San Francisco as a highly soughtafter market for hotel investments. Figure 9 Acquisition volume by buyer group since 2011 Figure 9 Acquisition volume by buyer group since % 53% As a gateway city, the market has also been a target for a multitude of investors, including off-shore investors. Recent purchases by offshore investors include the W Hotel in 2009 (Keck Seng Investment) and the Huntington Hotel in 2011 (Grace International). 5% 6% 2% Private Equity Hotel Operator Developer/Property Company Institutional Investor REIT Source: Jones Lang LaSalle

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