By Gary Marsh
San Jose and Silicon Valley are booming, as evidenced by hotel occupancy and nightly rates (Part I) in downtown San Jose’s premium hotels, as well as the mostly full motels on The Alameda, the arterial street that connects the downtown with Santa Clara to the west.[contextly_sidebar id=”UPrgxmvDbLiffdyk2qtpKVOtbtY7h7rw”]I stayed in a brand-name motel on The Alameda a few weeks ago in order to be in position for an early morning real estate conference at San Jose’s Rotunda that was hosted by The Registry.
It used to be that I could wake up with the farmers and from my Marin County home, hit the road before sunrise to make a Silicon Valley event in the morning, but not anymore. The Bay Area’s roaring economy has caused a spike in traffic (you may have heard). Thus, I planned to stay a night in San Jose before the panel event (Transforming San Jose).
I called five downtown hotels—all the usual suspects—and the best rate that I was quoted was $385 for the night, including parking and tax. Two of the hotels I called were sold out. I even tried the upscale hotel in downtown Los Gatos, because I like Los Gatos and used to spend time there when I lived in the Willow Glen neighborhood of San Jose, but all their regular rooms were booked, and the best I could get was a suite for $450. Needing just a place to sleep and shower in the morning, it was all too rich for me.
Before hanging up with the reservationist at the last business-class hotel I called, I asked if there was a conference in town, or something that was filling up all the hotels and driving prices up.
“No,” he said. “I think it is just all the business people that come here somewhat regularly want to get their business done before Valentine’s Day weekend and the President’s Day holiday” (which fell on the Saturday and following Monday during the week I choose to visit).
The proverbial light bulb went off in my head. The tech industry hasn’t boomed like this since 2000. Companies from all over the U.S., indeed, the world, want a piece of the Valley’s action. Of course the hotel industry is achieving occupancy and rental rates like they haven’t in years. Which, at least this time, priced out one moderate-cost marketing consultant and freelance writer from the better hotels in the region.
Part II of the booming economy theme was realized when I checked into my motel on The Alameda. You can tell a lot by the cars in the parking lot (if you ever visit an upscale residential Realtor’s office, the lot is full of brands like Mercedes, BMW, Lexus and Audi). At the motel on The Alameda it was full of construction trucks, plus an eclectic mix of cars like the every-day Ford Taurus, SUVs, one red Ferrari and my Volvo XC, which reminds me of one of my favorite Robin Williams jokes: “Do you know how you can tell a Republican in Marin? He’s driving around in a Volvo station wagon, with gun racks.”
It was sundown when I pulled into the motel parking lot, and the construction workers were hanging out in front of their motel rooms in groups of three and four men, drinking long-neck beers and having fun. I struck up a conversation with one of the groups near my room. Unlike my slow-to-grasp situation with the business-class hotels, I knew from the construction trucks in the parking lot that the demand for construction workers was pulling people in from out of the area.
Sure enough, the fellows I chatted up were from Fresno, Manteca and Redding, respectively. They stay at the motel for the week, leaving their homes either Sunday evening or at an insanely early hour on Monday and leave San Jose early Friday afternoon to return home. This crew was working in downtown San Jose—something to do with a street improvement contract. But I could tell from the trucks that there were all kinds of contracting specialists in town for the night, or week, including two trucks from a retail construction company based in the Orange County city of Irvine. And come to think of it, those guys may have been brought up north as a preferred contractor to The Irvine Company, which is one of the busiest developers in Silicon Valley these days.
My overnight stay was comfortable and my room was clean. It cost a whopping $101 including tax, and it came with one cold beer and nice conversation with a few salt-of-the-earth construction workers.
Curious, I did a little reporting on the trends that I recognized in San Jose and how they are impacting the local hospitality industry and construction-labor market.
Hotel Occupancy and Rental Rate Averages
The Monthly Hotel Occupancy Report is compiled by the San Jose Convention and Visitors Bureau (SJCVB). The report covers seven hotels within walking distance of the San Jose McEnery Convention Center and seven hotels that are slightly beyond walking distance to the center.
In August 2012, the report stated that the seven downtown hotels averaged an occupancy rate of 71.7 percent, which was up almost 10 points from the previous seven-month average of 61.01 percent. The Average Daily Room Rate (ADR) for all 14 of the downtown and uptown hotels jumped from $128.65 at the beginning of 2012 to $139.51 by August of that year.
By January 2014, the occupancy rate settled at 66.05 percent yet the ADR kept climbing, to $153.38. The average daily rate increased again in a year’s time, hitting $178.67 in January this year, even while average occupancy went up to 69.06 percent, according SJCVB.
Scott Littlehale, a spokesman for the Northern California Carpenters Union 405, dug up some data for me that for the most part confirms that there is more construction-related employment in Santa Clara County but it is only approaching the level that we experienced in the previous peak between 2007 and 2008, and there are far fewer construction workers on jobs these days than the 1999-2000 boom. The data in the graph runs only through 2013, and the Employment Development Department has 2014 numbers, but they are not totaled. However, it is safe to estimate that there are some 40,000 construction workers working in Santa Clara County today, versus 45,000 in 2007 and about 48,000 in 1999.
This is a graph of total Construction Industry employment (including white collar employees of construction firms), 1997 – 2013. The data are for firms domiciled in Santa Clara County. The data source is the Quarterly Census of Employment and Wages, and are based on filings to the Employment Development Department (EDD) of the State of California. The series below is average annual employment, which is why the series stops at 2013. Annual data for 2014 haven’t yet been released. There is no official data source that measures workers by (temporary) construction job site.
While construction employment in the South Bay is on the upswing, and we are seeing many highly trained construction workers who earn family-sustaining wages back at work in Silicon Valley, there is a pressing need to train & employ more local workers and get them embarked on careers with wages & benefits that can keep them living and working in the Bay Area. That happens through one proven channel: apprenticeship and training programs established and overseen jointly by building trades unions and unionized contractors. The system stays successful when there is a healthy pipeline of work for the contractors who employ those local union apprentices, according to Littlehale.
Gary Marsh is a Principal at Marsh Marketing in San Anselmo, Calif.
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