By Jacob Bourne
Virgin Hotels has been expanding all over the country, well beyond its Chicago pilot location. Seven new hotel openings are coming ahead over the next two years including West Coast sites in San Francisco, Palm Springs and Milpitas. The San Francisco location, developed by Paradigm Hotels Group is due to open its 12-stories in the South of Market neighborhood at 250 4th Street this summer. Architectural Dimensions is the project’s architect. The property is in close proximity to Yerba Buena Gardens, The Moscone Center and the new Transbay Terminal. The 78,000 square foot hotel will offer 196 rooms and suites, several dining and bar options, coffee shop, rooftop bar, meeting rooms and a cocktail lounge known as The Commons Club. The Virgin Hotel is among several hotel brands that have sought development opportunities in San Francisco, exemplifying an emerging boom for the industry following a much slower growth period between 2013 and 2016.
Virgin Hotels CEO Raul Leal commented in a recent press release, “San Francisco is a dynamic, forward-thinking city that embodies so much of what Virgin Hotels stands for, and is already home to many fans of the Virgin brand. As a top domestic and international travel hub for both business and leisure alike, San Francisco is an ideal location for our next Virgin Hotel.”
“We’re thrilled to partner with Virgin Hotels as it continues its expansion around the world,” added Jay Singh, owner of Paradigm Hotels Group. “Virgin Hotels is a brand that knows what travelers want and it’s exciting to bring this specific level of service to San Francisco.”
San Francisco and other parts of the Bay Area have rebounded from the slump in hotel deliveries during prior years, and development opportunities now hold added value for investors. According to a hotel industry predications report by HVS Consulting, San Francisco is expected to experience the second highest hotel valuation appreciation through 2019, second only to Huntsville, Alabama. For 2015, the report found the highest rates of appreciation in Oakland and San Jose, compared to other major U.S. cities.
“The long range is just gorgeous,” said Rick Swig, president, RSBA & Associates. “If tomorrow San Francisco gained 3,000 to 5,000 rooms it wouldn’t be the end of the world; it would be beneficial as far as creating balance. The market can handle it but I doubt we’ll see that much so soon. There’s so much demand that our city has gotten spoiled with 80-percent occupancy for the last five years, so if it drops down to 75 percent, so what?”
The abrupt uptick in hotel supply is a trend also occurring outside of California. Data from JLL’s Hotel Investment Outlook 2017 shows the increase between 2015 and 2016 in North American hotel room construction to be higher than the rest of the world, including Asia Pacific, Europe, Middle East & Africa, and Latin America. Mainland China had the lowest supply pipeline momentum. Researchers predict that despite political tensions, both foreign and domestic, international travel will grow by four-percent every year over the next decade, preceded by a record number of travelers entering the U.S. in 2016, which mirrored a record hotel occupancy rate. The report concluded that West Coast markets and Washington, D.C. will be the top growth performers in 2017.
In a November 2016 report from CBRE, researchers predicted that Northern California markets, Washington, D.C. and Tampa will have the highest gains in average daily rooms rates, but that rising labor costs will pose a challenge for the industry across regions. The data indicated that in the U.S. lodging industry, occupancy rates averaged 65.3 percent in 2016 and they expect a slight tapering to 65 percent for 2017.
In keeping with San Francisco’s overall development trends focused in the city’s Eastern neighborhoods, hotel construction is currently concentrated in SoMa and surrounding areas. The San Francisco Proper Hotel at 45 McAllister Street is also slated to open this summer, with Hotel Via at 144 King Street and Yotel at 1095 Market Street on the way.
“All the hotels opening are relatively minor and small in the overall context of things, around a couple hundred room hotels,” Swig added. “They are very small or niche hotels, which will have very little impact. They’re justified to open and are aimed at specific market targets. There’s a market to support them.”