San Diego Tops Hotel Building

San Diego and Orange counties led the state in new hotel construction during the first half of the year as Northern California continued to feel the effects of a shortage of business travelers and tourists, according to a report released Wednesday.

The most activity was in San Diego County, where 1,777 rooms opened in eight hotels, an 88% jump from a year earlier, said Atlas Hospitality Group, a Costa Mesa hotel broker and consulting firm. San Diego also had the largest hotel to open in the first half of this year: a 750-room addition to the Manchester Grand Hyatt downtown.

Also completed in San Diego County was the 397-room Barona Valley Ranch Resort and Casino near Lakeside.

“San Diego has emerged from the huge dependency on the defense industry it had in the early ‘90s to be one of most diverse economies in the state,” said Atlas President Alan Reay. Tourism and trade are particularly strong businesses in San Diego, he said, and helped hotel room revenues rise 1.5% during the first half despite the increased competition.

Orange County sought to stay competitive as a resort destination with the opening of 1,328 rooms in six hotels, an 80% increase from the first half of last year. The county’s largest new hotel was the 520-room Hyatt Regency Huntington Beach Resort & Spa. Other new hostelries included the 260-room Montage Resort & Spa Laguna Beach and the 131-room Balboa Bay Club & Resort in Newport Beach.

Only three hotels, with a total of 248 rooms, opened in Los Angeles County during the January-June period, the largest of which was a 118-room Holiday Inn Express in Valencia. The 248 new rooms represented a 61% decrease from a year earlier. Room revenues in L.A. County declined 2% during the first half of this year. Reay said investors still are able to buy area hotels for less than it would cost to build new ones.

Northern California, meanwhile, saw the opening of 17 new hotels with 2,379 rooms, a 25% decrease. Santa Clara County added the most number of rooms with 719 in two hotels, compared with seven hotels with 743 rooms in the first half of last year. The largest new hotel was the 506-room San Jose Marriott.

San Francisco added 348 rooms in one hotel, the Club Quarters. It was a slight decrease from the first half of 2002, when the 360-room Omni San Francisco Hotel that opened.

The lack of new construction in Northern California is no surprise, Reay said. The Bay Area in particular has “just been hammered” by a fall-off in business travel and tourism after the dot-com collapse and the 2001 terrorist attacks, he said.