Hoteliers Know the Way
Boosted by its booming high-tech industry, the Silicon Valley--and San Jose in particular--has become one of California’s hottest hotel markets, and developers are beginning to cash in on the momentum.
After suffering in the nationwide hotel industry slump in the early 1990s, San Jose has recovered strongly. Local hotels are bustling with weekday business travelers.
“Particularly downtown, occupancy is really close to 100% Monday through Thursday,” said Leonard Hoops, a spokesman for San Jose’s Convention and Visitors Bureau.
Bill Helpard, a product support engineer at Fujitsu Computer Products of America in Santa Ana, is a regular traveler to San Jose. He often has trouble booking a room.
“I’ll call up and ask for a room for a couple of nights, and the travel agency will say they only have rooms in San Francisco or Los Gatos,” he said. “Lately, they’re quoting 20 to 40 miles away on any given day.”
He was just one of the 5.2 million people who visited San Jose, half of them traveling for business, in the 12 months ended June 30, the most recent numbers available.
Those visitors pushed occupancy rates at San Jose-area hotels to 80% last year, well above Los Angeles’ 71% and San Diego’s 72%, and even beating San Francisco’s strong 79%.
Room rates also have risen steadily in the San Jose area, to an average of nearly $100 a night in 1996, up 25% since 1994, according to PKF Consulting, a hotel-industry analysis company based in San Francisco. In Los Angeles, the average nightly rate was $89.
The demand for rooms has spawned a building boom unseen elsewhere in the state, specifically in the limited-service and extended-stay categories. Sixteen properties, including some for Marriott Residence Inn and Homestead Village, are completed, under construction or approved for building in the San Jose area. An additional 13 have been proposed or are in the approval process. By contrast, only a couple of hotel projects are underway between Los Angeles and San Diego, according to Steve Usher, a partner in Hospitality Unlimited Investments in San Marino.
“You can justify building a [full-service] hotel in the Silicon Valley market much quicker than you can in most markets in Southern California,” Usher said. The San Jose-area hotel market is six months to a year ahead of the rest of the state’s hotel markets in recovering from the recession, according to Bruce Baltin, senior vice president in the Los Angeles office of PKF Consulting.
A big, traditional full-service hotel is not in the immediate future for San Jose, though, experts said. Instead, reflecting what hotel analyst Ken Kuchman of PKF calls a nationwide trend, developers are building limited-service and extended-stay facilities geared to business travelers in town for weeks or months. Limited service can include budget hotels or upscale hotels that don’t have conference rooms or banquet facilities. Extended-stay facilities may have kitchenettes and are designed to be more self-contained, like an apartment.
Unlike corporate housing companies such as Oakwood Apartments, though, which require a minimum 31 days’ stay to avoid charging guests the hotel tax, limited-service and extended-stay facilities allow shorter stays.
Lacking lobbies, dining rooms and other facilities required of major hotels, these 100- to 150-unit properties are cheaper to construct and more profitable.
Homestead Village, a Santa Fe, N.M.-based developer of mid-priced, extended stay properties, is launching its entry into California in the Silicon Valley.
“The Bay Area is a strong market--we perceive it to be a strong market for us,” said Art May, vice president of Homestead Village. His company is building seven facilities in San Jose and nearby cities. Two more are on the drawing board. The first three opened last month.
“Our clients are business-oriented,’ May said. “They need to be somewhere for longer than a week or two. This is a niche that hasn’t been filled.”
But it is attracting attention from major investors. Billionaire H. Wayne Huizenga heads Extended Stay America Inc., which recently agreed to buy Studio Plus Hotels Inc., another operator of budget, extended-stay properties. A group led by billionaire George Soros, the well-known money manager, recently bought a stake in Extended Stay, which has earmarked Milpitas and Fremont for new properties.
Despite the boom in long-term lodgings, plenty of business people would like to see another full-service, first-class hotel built in downtown San Jose. The city’s Redevelopment Agency has earmarked a site it owns next to the convention center, dubbed “hotel east,” where it hopes a major hotel will be constructed.
The San Jose Convention and Visitors Bureau says the city is losing business because of a lack of hotel rooms and convention space.
“Over the last three years, we calculated that we have lost 150,000 hotel-room nights and more than $40 million in direct economic spending from convention delegates because we didn’t have enough space to accommodate groups that were interested in us,” Hoops said.
The recovering market has attracted some interest from full-service hotel developers.
So far, though, activity in the local, full-service hotel market has been limited to buying and renovating existing properties.
(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)
More Room at the Inn
There are 1,908 new hotel rooms or extended-stay units being built, recently completed or approved for construction in Silicon Valley. Another 1,445 units have been proposed. Here’s a closer look:
Recently Completed
Milpitas
Homestead Village: 118
*
San Mateo
Homestead Village: 136
*
Sunnyvale
Homestead Village: 144
Total Units: 398
Under Construction or Approved for Construction:
Cupertino
Sand Hill Property Co.(1): 160
*
Milpitas
Extended Stay America: 146
Marriott Residence Inn: 120
*
Mountain View
Homestead Village: 132
*
San Carlos
Comfort Inn: 50
Inns of America: 100
*
Santa Clara
Comfort Suites: 96
Homestead Village: 144
*
San Jose
Executive Suites: 51
Homestead Village: 152
Marriott Residence Inn: 150
*
San Ramon
Homestead Village: 147
*
Sunnyvale
Comfort Inn: 62
Total Units: 1,510
Proposed (2):
Fremont
Econo Lodge: 45
Extended Stay America: 100
Hawthorn Inn: 100
Homestead Village: 133
La Quinta: 145
Marriott Hotel: 239
Westin Hotel: 176
*
Mountain View
Westin Hotel: 108
*
San Carlos
Homestead Village: 116
*
San Jose
Candlewood Inn: 126
Days Inn: 62
Sleep Inn Hotel: 44
Sleep Inn Hotel: 51
Total Units: 1,445
(1) Negotiating with Hilton Garden Inn for hotel affiliation.
(2) Developer has made a formal initial inquiry, a preliminary application or approval is pending with city council or planning commission.
Source: City planning departments
