Hotel development implodes in Bay Area and California due to economy: new report

Hotel development implodes in Bay Area and California due to economy: new report

SAN JOSE — Hotel construction and new openings have cratered in the Bay Area and throughout California, fresh evidence of a brutal commercial real estate market statewide, a new report shows.

The post-coronavirus struggles for the lodging sector appear to have eroded the hotel market in a big way, according to a yearly survey that Irvine-based Atlas Hospitality Group released.

“The rapid increase in interest rates, together with lenders pulling away from making hotel construction loans is definitely having a negative impact on hotel development in California,” Atlas Hospitality stated in its report.

AC Hotel at 1431 Jefferson Street in downtown Oakland. (Google Maps)

An estimated 17 hotels with a combined total of 1,987 rooms were constructed in 2023 in the Bay Area, the Atlas Hospitality report determined.

Those numbers represent a sharp decline from Bay Area totals for 2022, when 25 hotels with a combined total of 2,709 rooms were built, according to Atlas Hospitality, which tracks the California lodging market.

This means that in 2023 compared with 2022, the number of hotels built in the Bay Area plunged by 32%, while the number of constructed rooms fell by 26.7%, this news organization’s analysis of the Atlas Hospitality report shows.

Construction financing has become scarce at best for those who wish to develop a new hotel.

“For those developers who have hotel projects in planning but have not yet obtained financing, we predict that very few will move forward,” Atlas Hospitality stated in the report.

The only hotel to open in 2023 in Santa Clara County was the La Quinta Inn & Suites by Wyndham at 1036 North Fourth Street in San Jose.

Oakland, another former hotbed for new hotel development, saw just two hotel openings in 2023. One of those was the AC Hotel by Marriott at 1431 Jefferson Street in downtown Oakland.

The outbreak of the coronavirus — and the accompanying business shutdowns that government agencies ordered in a quest to combat the spread of the deadly bug — devastated the worldwide lodging market.

The shutdowns chased away potential hotel guests. The market has yet to recover from its coronavirus-induced maladies.

One unexpected silver lining: The hotel market is in such bad shape that property owners have launched a growing number of efforts to convert their hotels to sites for affordable, supportive, or student housing.

In downtown San Jose, the former southern tower of the Signia by Hilton Hotel was bought by a Bay Area real estate firm that is working to convert the building into a tower with enough rooms to accommodate 800 or more San Jose State University students.

“The strong headwinds facing new hotel development combined with so many California hotels now being purchased for alternative use will create upward pressure on values,” Atlas Hospitality stated in the report.