San Francisco Builds Rooms To Combat Supply Crunch

<B>San Francisco Builds Rooms To Combat Supply Crunch</B>

By Judy Jacobs

In spite of the fact that there are two major and several smaller hotels under development, San Francisco's room supply just can't seem to keep up with demand, and that's not expected to change. In fact, when the Moscone Convention Center expansion comes online in 2002, the situation is expected to get worse, and room rates will continue to climb.

"The new hotels will be absorbed in about two seconds," said Rick Swig, president of RSBA & Associates, a San Francisco-based travel industry consulting firm. "Since 1980, hotel demand in San Francisco has consistently grown at 2 percent per year. The only thing that limits that growth is the lack of supply. There are 30,000 hotel rooms in San Francisco, and a demand for 600 new rooms each year. And with the addition of 300,000 square feet of meeting space at the Moscone Annex, San Francisco could add another 1,500 to 2,000 hotel rooms and still have a competitive supply."

Additionally, room rates will continue to increase. According to PKF Consulting, the average room rate in San Francisco was $151 last year and is expected to be $157 in 2000, making it one of the most expensive hotel markets in the nation. "Room rates will continue to climb at a rate of about 5 percent per year," Swig said. "Midprice luxury hotels have rates of $225 to $250, so this is no small increase."

While supply may not be able to keep up with demand, several new hotels coming online in the next few years will give business travelers more of a chance to get conveniently located hotel rooms. Perhaps foremost among these is the Omni San Francisco, scheduled to open late next year in the center of the city's financial district.

As its first hotel in San Francisco and second in the Western United States, Omni is converting the former 17-story Financial Center Building into a 362-room hotel with 15,000 square feet of high-tech conference space.

"The hotel will be unique," said Peter Strebel, Omni's vice president of marketing. "Omni is not a cookie cutter company. We're designing this to give it an historical San Francisco look."

Although the hotel's main market niche is expected to be individual corporate travelers, it also will go after the corporate group market, targeting meetings in the 25 to 100 person range. With rooms pegged at $300 plus, it will be promoted as an affordable luxury option and is expected to compete with such major downtown hotels as the Park Hyatt, Westin St. Francis, Fairmont, Ritz-Carlton and Mandarin Oriental.

The second major property, Four Seasons Hotel San Francisco, will open next spring on a Market Street site between Moscone Center and Union Square, just a few minutes walk from the Financial District. The 277-room hotel is part of a mix-use development that includes 16,000 square feet of meeting space, a fitness center/sports club and spa, as well as condominiums.

Meanwhile, Personality Hotels of Union Square, which includes four San Francisco boutique properties--Hotel Union Square, Kensington Park, Hotel Diva and Hotel Metropole--intends to build another hotel, M31, on a site next to its Hotel Union Square. City planners have approved the location on a current parking lot, but the owners haven't gone through the permit process yet, said president Yvonne Lembi-Detert. "M31 is the largest star in the galaxy, and the hotel will have a very modern theme." The hotel will open in early 2003.

Joie de Vie, another local boutique hotel operator, intends to build a 200-room loft-style hotel on the waterfront Embarcadero, south of Market Street. Construction, originally expected to begin this year, has been delayed to 2001. The hotel will be aimed at corporate travelers looking for something a bit different, and plans call for meeting space for groups of 50 to 100 people.

With space for hotel development at a premium in downtown San Francisco, developers are reaching out to nearby neighborhoods, like Fisherman's Wharf. Bristol Hotels & Resorts, which recently was purchased by Bass, is developing a new Holiday Inn Express and Suites on a site adjacent the Holiday Inn Fisherman's Wharf. Because the hotel is a brand new construction it will have "some of the newest technology with high-speed Internet access in guest rooms and meeting facilities," said Pat Campbell, Bristol's vice president of development. The hotel, which opens early next year, will have 252 rooms, including 38 suites and 2,600 square feet of meeting space.