The forecast for San Diego’s tourism industry in 2015 is bright with a few clouds. The sunny outlook for the year was presented March 20 at Carmel Valley’s R.A. Rauch and Associates’ annual lodging industry event, “An Extraordinary Year Ahead,” at the Hilton Garden Inn in Torrey Hills.
The event featured a discussion moderated by Gary London from The London Group Realty Advisors with two experts in the hotel sector: longtime Carmel Valley resident Robert Rauch of R.A. Rauch, and Alan Reay from Atlas Hospitality Group, a specialist in capital markets and a leading hotel industry adviser.
“I think this is going to be the best year we’ve ever had in the U.S.,” Rauch said.
San Diego finished 2014 at 74.6 percent occupancy, higher than the national average, and is forecast to surpass 75 percent this year. Rauch said they had a record year at his Hilton Garden Inn and at Homewood Suites next door.
Many attendees at the forecast event were interested in learning more about the impact of Airbnb, an online vacation rental platform, in which rooms and in some cases entire houses are rented by the night in residential communities by the homeowner. A quick search for the upcoming weekend showed several options in Del Mar, Solana Beach and Carmel Valley from $70 a night for a room to $350 for an entire home.
Reay said that Airbnb is now responsible for more than 6 percent of occupancy in cities like New York and San Francisco, although it hasn’t yet affected San Diego in a significant way.
Reay said Airbnb is going to be a serious player — almost like the Uber of the hotel sector.
He said Airbnb has a huge competitive advantage, as in many cities Airbnb has cut deals regarding the payment of taxes. Also, Airbnb “hosts” don’t have to pay employee wages or benefits, which is the biggest expense for hoteliers.
“They’ve become a major player in many more cities, and certainly as hoteliers I would be concerned about this,” Reay said. “I think they are definitely taking a market share and it’s not a trend, it’s permanent.”
“There’s no doubt that the Millennial generation is extremely supportive of this,” Rauch said noting that Millennials (those about 18-35 years old) make up 33 percent of hotel stays and they are the fastest growing travel segment.
The Airbnb trend has reached San Diego’s radar. In February, the city’s Code Enforcement Department sent out notices to 252 Airbnb hosts in an effort to inform them that renting rooms on a short-term basis requires a Transient Occupancy Registration Certificate and the payment of taxes.
Property owners who rent rooms are subject to the Transient Occupancy Tax (TOT), a 10.5 percent tax imposed on any rentals of less than a month; and a Tourism Marketing District assessment, a 0.55 percent tax on rentals in buildings with fewer than 30 units.
Since October 2014, 296 short-term rental property owners have registered and are paying Transient Occupancy Taxes to the city, remitting a total of $179,483 in taxes and related penalties, according to the city treasurer.
As of March 23, the active number of short-term rental certificates now totals 1,889.
San Diego City Council’s Smart Growth and Land Use Committee is expected to consider home-sharing regulations at its meeting on April 22.
For the hoteliers, Rauch said they could expect tourism to increase in 2015 in the group market, as conventions and conferences are making a comeback, and also in the corporate travel market.
Rauch said people are also doing more leisure travel. They work hard and want to take a vacation and are traveling more to celebrate milestones like birthdays and anniversaries.
Rauch said the Baby Boomer segment will have the greatest impact on the hotel industry in 2015, as they are projected to own 60 percent of the country’s wealth and account for 40 percent of the spending.
Millennial travel is also picking up and is expected to drive the improvement of technology at hotels. Check-in with smart phones is expected in the next 12 months, and Starwood Hotels is developing an app for the upcoming Apple Watch that works as a room key.
Reay said 2015 would also be a year of “brand proliferation,” as parent companies such as Marriott, Hilton, Starwood and Best Western have aggressively extended their reach with new “lifestyle” brands and differing price points. Marriott has up to 18 different hotel brands.
More than anything, Reay said, companies should not lose focus on the most important aspect of a hotel stay: the bed.
“People still want the basics,” he said. “They want a clean room, pleasant staff, a great bed and a good shower.”