San Francisco Hotel Market Recovery Predicted for 2025

A hotel recovery could be on the horizon in San Francisco. The city is expected to have the greatest increase in revenue per available room and the highest room rates in Northern California by the end of this year, according to a CBRE forecast.

The commercial firm anticipates that San Francisco RevPar will be up 8.4 percent in 2025, due to an expected increase in business and convention travel. That far outpaces the national average of 1.3 percent. Locally, Sacramento is expected to see the second-largest increase at 4.5 percent, followed closely by San Jose at 4.4 percent, Oakland at 2.9 percent, and Napa/wine country at 2.2 percent.

At a predicted rate of $151.04 per night for 2025, San Francisco’s RevPar is still far from its 2019 peak of just over $200. But it is also the highest average in the region, according to CBRE figures, and is expected to rise again to about $160 per night in 2026. It’s also quite a comeback from a RevPar of under $75 per night in 2020 and 2021.

“Return to office mandates and improved safety perceptions have brought back tourism and conventions,” CBRE hotel appraiser Justin Schlageter said of San Francisco’s improved hospitality scene. “Many hotels in downtown San Francisco and around tourist areas have seen improved occupancy rates.”

SF Travel, the city’s tourism association, said its internal figures forecast a nearly 70 percent increase in hotel room nights tied to events at Moscone Center this year.

The “robust 2025 convention calendar” is “critical to accelerating our tourism recovery” with international visits still below pre-pandemic levels, according to SF Travel President and CEO Anna Marie Presutti.

The lack of new hotel construction due to rising construction and financing costs is also contributing to the trend. Wine country is forecasted to have 2.1 percent supply growth in 2025, as demand for drive-to and regional leisure destinations has been on the rise and is expected to continue trending upward. Urban markets like San Francisco and San Jose are expected to see almost no new supply.

“San Francisco has had a supply and demand imbalance, so even though there is no new hotel construction, increased demand is creating a healthier market,” Schlageter said.

Related California hopes to add to the city’s hotel supply for the first time in years with a plan for a new five-star hotel within a 41-story office tower in popular Jackson Square.

“New is winning,” Related President Gino Canori told The Real Deal at an event dedicated to San Francisco’s comeback last month, adding that the city’s last brand new luxury hotel, the St. Regis, will be 30 years old by the time the Jackson Square hotel delivers in 2030. “That’s really not even five-star anymore.”

He expects the new hotel, which is slated to have just 200 rooms, to appeal to tourists, locals and business travelers. He said convention planners typically look three to five years out and given that the five-year anniversary of the pandemic has passed, the city is “getting a fair share” of the groups who departed during that time coming back again.

Convention organizers need to see that safety, security and policing are all top of mind to recommend returning, he said, crediting Mayor Daniel Lurie and his staff for helping to make the city’s case to decisionmakers. Lurie did not immediately reply to a request for comment.

The distress that has hit the city’s hospitality sector may have peaked as well, Schlageter said, arguing that “the worst is behind us” on that front.

“Improved tourism numbers, along with increased business travel and conventions have already helped San Francisco’s hotel recovery and I’m optimistic that it will continue to improve,” he said.

There is even a buyer for two of San Francisco’s biggest distressed hospitality assets — the 1,921-room Hilton San Francisco Union Square and 1,024-room Parc 55 San Francisco. The identity of the buyer on $725 million debt on the hotels, formerly owned by Virginia-based Park Hotels, is unknown, but servicer commentary indicates that it is in contract, contingent on upon the loan, which will be extended, being assumed by the buyer.

The new owner must cover cash flow shortfalls and fund renovations, according to Morningstar, citing servicer comments. The pair of hotels ran at an operating loss of $34.1 million last year, per Morningstar.