Demand Climbs As Hotels Upgrade Corp. Amenities

<I>San Francisco</I> - While most hoteliers have been raising their prices incrementally, many are taking advantage of the seller's market to reinvest in their corporate amenities.

PKF Consulting's projections of an 8 percent price increase for 1997, on top of an 8 percent jump last year, should spell good news for local hotel managers and present a tricky year in negotiations for travel managers. As in other major business destinations, lodging demand is outpacing construction, affecting rates and occupancies.

Major Renovations

"We're selling in a seller's market," said Chuck Bowling, area director of sales and marketing for the Westin St. Francis Hotel. "San Francisco is a hot destination, but there isn't a lot of new product to feed the demand. Prices are going to continue to rise."

For buyers, the good news is that hotels aren't just banking their increased profits.

Properties across the city are using the boost in business to upgrade their facilities. The St. Francis, for example, is just finishing a three-year, $55 million refurbishment that included restoration of all 1,192 rooms and conversion of three full floors to Westin's Guest Office product. The old 32nd floor restaurant has been turned into Victor's Palace, a $1.5 million special events venue.

The Renaissance Stanford Court is putting $4 million worth of new soft goods into its 400 rooms. With relatively little function space, the Stanford Court relies heavily on repeat business from business travelers, who account for 60 percent of room nights, said director of sales Peter Rockwood. He's expecting even more business accounts following Marriott's purchase of Renaissance properties worldwide.

The San Francisco Hilton and Towers, the city's largest property, is putting $8 million into its 1,895 rooms. Nearly all of the changes are the direct result of business traveler requests, including dataports in all rooms, two-line telephones, irons, ironing boards, on-command video for movies and automated checkout.

The Mandarin Oriental, already one of the busiest properties in the city at an occupancy rate of 84 percent, spent $250,000 to redo its lobby lounge. A new executive package includes continental breakfast for two, daily paper, one hour of free conference room use and guaranteed 4 p.m. checkout through the end of the year. Much of May was sold out by mid-March.

Meanwhile, the jury is still out on how fast and how far prices will go up, especially for hotels that have long-term relationships with corporate clients.

Jon Handlery, president of the Hotel Council of San Francisco and general manager of the Handlery Union Square Hotel, reported that hotel managers are remaining cautious about rate increases. "You go to whatever the market will bear," he acknowledged, "but people have gone up gingerly so far. I don't see any double-digit increases in the charts. Let's remember who our long-term clients are and not go overboard."

The market, however, might not back that kind of long-term caution. PKF vice president Corey Limbach noted that leisure and group travel is the largest single demand sector at 40 percent of arrivals, among the highest of any major U.S. business destination. That puts commercial and convention travelers in direct competition with vacationers.

Barring a natural or economic disaster, Limbach said, demand will continue to rise across the board, fueled by expansion at San Francisco International Airport (See story, Page 22), a new downtown baseball park, a second expansion of the Moscone Convention Center and a booming business sector.

While there are no large hotel projects in the works, travel managers and planners might want to explore their opportunities at some of the newer and smaller properties.

Joie de Vivre Hotels, a boutique specialist, recently opened the 153-room Maxwell Hotel, a sparkling redevelopment of the old Raphael Hotel just off Union Square. Although the art deco property is being pitched to the shopping and theater crowd, rooms are about 25 percent larger than in other nearby hotels and come equipped with the latest in working desks, dataports, practical lighting and corporate rates that Joie de Vivre president Chip Conley said are "designed to build word of mouth." Rack rates start at $99.

Conley also is rebuilding and renaming the Powell West hotel, on the edge of the Tenderloin district, as The Bijou, set to open May 1. The 65-room property should see good convention traffic from events at Moscone Center, a 10-minute walk away. Corporate rates top out at $75 to compensate for the property's less-than-prime location.

But for any new large-hotel efforts, buyers will have to wait until after the millennium.

Preliminary development plans for all three major hotel sites near Moscone Convention Center have fallen through, including a 330-room Swiss&ocirc;tel project that was to have broken ground later this year. John Marks, head of the San Francisco Convention & Visitors Bureau, said he expected to see another 400 to 700 rooms downtown "at some point," but warned that new rooms are at least two to three years away.

Room inventory might get even tighter than it already is, now that work is under way for a second expansion of the Moscone Convention Center, due for completion in 2002. The city could handle the increased convention traffic with the current inventory of 30,000 rooms, Marks said, but only if demand from other sources remains stable.

For now, companies should book their rooms well in advance. Room blocks are being reduced, and commitment dates for meetings are being pushed farther out even as attendance breaks record numbers for nearly every group that has met in San Francisco before, PKF's Limbach warned.