Nov ‘23 Industry Insights & Trends
Industry Insights
Deloitte Research 2023 Travel Industry Outlook
San Francisco’s critical tourism sector is seeing continued recovery from its pandemic woes, but it still faces major challenges, including sparser convention bookings next year.
Hotel revenue is up 30% to date this year compared with last year, and visitor volume is projected to increase 6.2% to 23.3 million people in 2023 compared with last year, San Francisco Travel said Thursday.
Dreamforce, the city’s biggest conference, is returning next month. November will see the Asia-Pacific Economic Cooperation summit, which will include world leaders, including President Biden, and “place the city in the global spotlight,” Joe D’Alessandro, San Francisco Travel CEO, said in a statement. The group is the city’s official tourism bureau.
“Convention business has performed well, and the calendar is strong through mid-December,” he said.
Tourism and hospitality is San Francisco’s biggest industry, providing a crucial economic engine that lifts restaurants, retailers and other small businesses. The grim year of 2020, which froze almost all travel, cost the city and local businesses $8 billion. Tourists’ experiences also play a crucial part in shaping San Francisco’s global reputation.
San Francisco Travel now doesn’t expect a full recovery to 2019 tourism levels for a few more years, after previously saying a rebound could come by 2024 or 2025.
A key reason is that convention bookings are expected to fall next year, accounting for 427,000 confirmed hotel nights, down from 664,750 this year.
“We’re struggling from a pace perspective,” Brett Allor, senior director of market strategy and research at San Francisco Travel, said at the group’s tourism conference Thursday. “Event sizes are smaller.”
The weaker convention outlook was cited as a key reason that investor Park Hotels & Resorts is abandoning two of the largest hotels in the city, Hilton San Francisco Union Square and Parc 55.
San Francisco’s recovery still lags other U.S. cities, with the key revenue per available hotel room down 29% from 2019, Vik Krishnan, a partner at consulting firm McKinsey & Co., said at the conference. One of the strongest hotel markets, Las Vegas, is up 26% — and has been poaching conventions from San Francisco.
Long-standing challenges for hotel owners include high labor and operating costs, which shrink operating profits, Krishnan said. Hotel values have plunged 46% from the 2019 peak based on property sales, he added.
“We are focused on ensuring a safe and welcoming City for our residents, workers and businesses, and visitors from around the world,” Mayor London Breed said in a statement. “Tourism is a major contributor to San Francisco’s economic recovery, and we are beginning to see strong improvements with people coming back.” Breed faces reelection next year and has made public safety a major priority.
Average hotel occupancy is projected to increase to 66.8% this year, up from 62% in 2022, but it remains significantly below 2019’s 82.7%.
“San Francisco had further to fall. 2019 was a peak year. That is a tough benchmark,” Emmy Hise, senior director of hospitality Analytics at real estate data firm CoStar, said at the conference.
Dozens of San Francisco hotel owners face mortgage payment deadlines in the next two years, which could force them to give up control if they can’t repay loans.
“I would expect more distressed sales to happen,” Hise said. “This is happening all over the U.S.”
The tourism industry is optimistic that Chinese tourists, who were the highest-spending group before the pandemic, will return in greater numbers. United Airlines, the biggest carrier at San Francisco International Airport, says it will resume daily flights to Beijing in November and add Shanghai flights.
The expanded service to China “is huge,” Melissa Andretta, SFO director of aviation marketing and development, said at the conference. “It’s really Asia that is the … missing piece.”
