San Diego County’s hotel openings last year dropped to their lowest level in recent history, with just one property — in Chula Vista — making its debut in 2024.
The decline in new inventory is a trend being repeated statewide, according to a new year-end report released this month showing that 2024 marked the slowest pace of openings since 2014. The lone hotel opening last year was the 179-room SpringHill Suites Chula Vista Eastlake.
While new lodging inventory has clearly slowed, hotel construction in San Diego picked up considerably last year, following a plateauing trend over the last few years. In all, 13 hotels, accounting for 2,799 rooms — from Carlsbad to Jamul — were under construction in 2024, reported Orange County brokerage firm, Atlas Hospitality Group. Just a year earlier, only six hotels were in the construction phase.
Similarly, construction activity rose across the state, with 125 hotels representing nearly 16,500 rooms reported to be in some phase of construction. That’s still significantly less than the 23,451 new rooms in 168 hotels that were under construction just four years earlier.
Among the properties being built in San Diego County are a couple of smaller independent projects in Coronado, including the Baby Grand, a a 31-room luxury hotel from the hospitality group CH Projects that will feature an outdoor jungle and lagoon as part of the new project.
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Last year’s spike in construction may be due in part to a slowdown wrought by the pandemic years when there was uncertainty about where the tourism market was headed, believes Alan Reay, president of Atlas.
“A lot of things got put on hold after COVID, in 2020, 2021 and 2022, so we have a bit of a backlog starting in 2023 going into 2024 so there’s something of a pent-up supply,” Reay said. “But we’re now seeing those projects get started that already had their financing in place but deferred construction until post COVID.”
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With the exception of hotel projects that had been put on hold temporarily, developers more recently have been reluctant to pull the trigger on construction because of high interest rates and lenders’ lack of enthusiasm for financing new hotel construction, Reay said. Instead, the focus among investors has been on acquiring properties at a discount, primarily in areas that have struggled to rebound since the pandemic, like San Francisco, San Jose and, to a certain extent, Los Angeles, Reay added.
San Diego, though, remains a bright spot in California, he said.
“San Diego, from all the markets we look at with investors and developers, rates very, very high on the list of where people still want to invest in the market in terms of acquiring hotels and developing them,” he said. “When you look at markets like San Francisco, San Jose, Los Angeles, where there are large convention centers, San Diego has withstood the downturn that those markets have seen. San Diego now is one of the most important metro areas investors are sill looking at.”
Plans for one of San Diego’s biggest hotel projects, a 1,150-room hotel tower proposed by developer Doug Manchester more than two years ago, remains alive. Manchester Financial Group has been waiting for a more favorable lending environment before moving forward with a groundbreaking on a Navy-owned site near the downtown waterfront, said Ted Eldredge, president of the financial group.
“We’re out talking to equity partners now since the market has opened up a little bit and we want to time it right. We don’t want to go out to the market two or three times,” Eldredge said. “Interest rates should start coming down, and construction costs are staying stable. A lot of lenders had been unwilling to do ground-up construction, and a lot of (existing) properties were trading for prices less than replacement cost.”
Eldredge isn’t ready to say when the development will be able to get underway. However, he says he remains optimistic about the project’s potential, given its location near the bay and its cheap rent — a dollar a year — although it was required to build a new regional headquarters office building for the Navy at a cost of $210 million.
The nearly two-acre hotel parcel represents the last remaining property that Manchester controls out of the original 12-acre site that his company entitled years ago as a mega mixed-use development, formerly known as the Navy Broadway Complex located south of Broadway between Pacific Highway and Harbor Drive. More than four years ago, life science real estate developer IQHQ purchased the bulk of Manchester’s leasehold as part of a plan to build a 1.7 million-square-foot life science city on the bay.
“There’s definitely a demand for more hotel rooms in San Diego,” Eldredge said. “And this project will be easier to get done because it’s on the waterfront. And we should be able to have an advantage here because we’re on federal land. we don’t have to pay percentage rents to the Port. As soon as market is ready, we’ll be ready to go.”
