By CONNIE LEWIS
If hotel building were a sport, San Diego County would be in a league of its own.
Not only did the county finish 2006 with the highest tally of hotel rooms under construction statewide, it surpassed its own 2005 record by 113%.
Adding fuel to San Diego’s fire: lower construction costs stemming from the homebuilding slump, according to one market tracker.
“In over 10 years of tracking hotel development in California, 2006 tops the list for the highest number of hotel rooms we have ever seen under construction,” said Alan Reay, author of Irvine-based Atlas Hospitality Group’s hotel development survey.
“We’re seeing the cost of materials go down as demand shrinks for condos and single-family residential construction,” Reay said. “There’s less pressure on raw materials and less demand on contractors because more are freed up and they’re being more competitive in their bids.”
While demand for materials from Hurricane Katrina and China’s development continues, it is being offset by the decline in the market for condos and new homes nationwide, Reay said.
“My prediction is that any hotel developer that had shelved plans because of rising construction costs will be relooking at those projects because they’ll now pencil out,” he said.
In all likelihood, the gap between the cost of acquiring hotels and building will be narrower, Reay said.
San Diego had 3,770 hotel rooms under construction at the end of December, including the 1,190-room Hilton San Diego Convention Center Hotel, compared with 1,766 at the end of 2005.
Los Angeles County saw 1,492 rooms under construction. In Orange County, the count stood at 1,213.
Throughout the state, the total was 13,341 versus 9,115 in 2005.
The construction figures are a sharp contrast to the number of rooms that opened in 2006. In Southern California, 12 hotels with a total of 1,505 rooms opened. Just two opened in San Diego County,the 86-room West Inn & Suites Carlsbad and the 43-room Keating hotel downtown.
Historically, only 10% of projects in the planning stages actually get built. But the number of projects in San Diego’s pipeline rose from 9,960 rooms in 2005 to 13,390 in 2006.
Reay said he isn’t worried about overbuilding.
“We believe that California is just now making up for many years of very little new construction,” he said.
San Diego might be an exception.
“I think you’ll start to see a slight dip (in occupancy rates) late 2008,” he said.
That’s when the large Hilton Convention Center Hotel is set to open.
The San Diego Convention Center depends on hotels being built downtown to attract larger events. But expectations are that the center will be booked to capacity this year and next.
So, if more and more hotels open downtown, but the maxed-out convention center can’t feed them with visitors, then what?
One of two things has to happen. Either the 2.6 million-square-foot convention center would have to be expanded again, or more money has to be pumped into marketing to lure more tourists. Or both.
According to Steve Johnson, the San Diego Convention Center Corp.’s vice president of public affairs, the idea of expanding isn’t new.
“The ability to lead in the (convention) industry requires continually finding ways to build on success, and when the center’s doors were first opened, it was agreed that the facility needed to expand,” he said.
There are no plans on the drawing board.
Discussions on upping tourist marketing are serious, said David Peckinpaugh, chief executive of the San Diego Convention & Visitors Bureau.
Facing the end of the city’s fiscal year in June, two prominent hotel groups, the San Diego County Hotel-Motel Association and the San Diego Lodging Industry Association, are anxious to get the City Council’s blessing for a tourism business improvement district that could raise its own marketing money.
Being independent of cash-strapped City Hall, which has siphoned money from the city’s 10.5% hotel room tax,originally for tourism marketing,to support the general fund through the years, is the aim of the proposed district’s backers.
ConVis, the agency charged with telling the county’s story to the traveling public, has an operating budget of $12.3 million, of which $8.8 million comes from the city. That’s not enough to lure more tourists to fill hotels that are cropping up, tourism officials say.
Estimates are that the hotel room tax collection could amount to as much as $140 million in the current fiscal year. But opponents of the proposed district want the city to loosen its purse strings.
Under one draft, the proposed district would assess a 2% surcharge on rooms let nightly for hotels within the city. It could result in an estimated $26 million in marketing funds annually.
The proposal has been in the talk stages for more than a year, and the economic development division of the City Planning and Community Investment Department now is helping to prepare a draft that would go before City Council, Peckinpaugh said.
Under state law, the business district would need the approval of City Hall.
Lewis is a staff writer with the San Diego Business Journal.
