2026 Lodging Forecast San Diego

San Diego Hotel Performance Overview

As of August, San Diego’s trailing 12-month RevPAR rose 1.2%, reflecting a deceleration in performance, particularly evident during the summer months. The market’s momentum—strong in late 2024 and early 2025—has softened amid declines in domestic leisure travel and reduced government-related demand.

Looking ahead, full-year 2025 RevPAR is projected to enter negative territory, driven by expanding hotel inventory and only modest demand growth. Recovery is anticipated to gain traction in 2026 and beyond, though economic uncertainty and continued weakness in leisure and government travel present downside risks to that outlook.

Development Trends in San Diego

Developer interest remains intact, but high barriers to entry, including elevated construction costs, stringent environmental regulations, and community resistance—continue to constrain new supply. The recent $25 minimum wage hike approved by the San Diego City Council with an 8-0 vote last week, adds further pressure. As of August, 10 hotels totaling 1,328 rooms are under construction, representing a 1.9% increase in supply.

Following a strong investment surge in 2024, momentum persisted into the first half of 2025. Over the past 12 months, hotel sales volume reached approximately $288 million—below the three-year average of $641 million, yet indicative of sustained investor confidence.

Weekend demand remains robust, accounting for nearly one-third of total room nights. However, weekend RevPAR growth has plateaued, signaling softness in the leisure segment. Budget-conscious travelers are curbing discretionary spending or shifting to alternatives such as vacation rentals and cruises. San Diego has fared better than many leisure markets, supported by its temperate climate and year-round appeal.

Weekday performance is increasingly stabilizing the market, aided by the gradual return of business travel. The region’s concentration of life sciences firms—where remote work is less viable—is contributing to this rebound. Still, rising economic uncertainty and a slowdown in government travel are weighing on business sentiment. Rumors have it that the “semi-travel ban” enforced by the Trump Administration is going away. This would improve mid-week performance.

Group travel, which accounts for roughly 30% of hotel occupancy, posted a modest recovery in early 2025 after a decline in 2024. The San Diego CBD submarket, anchored by the 2.6-million-square-foot Convention Center, was among the hardest hit during the 2024 downturn but has shown signs of improvement. It remains the top performer by ADR and ranks second in RevPAR. San Diego/La Jolla leads in ADR and closely trails in RevPAR. Despite having two to three times the room count of other submarkets, downtown continues to maintain one of the highest occupancy averages in the region.

Construction Pipeline

The debut of the 1,600-room Gaylord Pacific Resort and Convention Center in Chula Vista—opened in May—marked the largest annual increase in hotel room supply in over two decades. Despite this, net supply growth over the past 12 months was tempered to 1.6% due to closures and conversions.

Currently, 10 properties totaling 1,328 rooms are under construction, and will expand inventory by 1.9% through 2027.

Historically, San Diego maintained one of the smallest construction pipelines among California and national markets. That changed with the Gaylord groundbreaking, putting the region into the top tier of hotel development. No hotel openings occurred in 2022, followed by two hotels (269 rooms) in 2023 and one 179-room opening in 2024. The largest concentration of new development is in the San Diego CBD and South/East submarkets, each projected to grow inventory by over 20%. Most projects are affiliated with national brands and fall within the upscale and upper-midscale tiers, with a strong emphasis on extended-stay formats.

In addition to the focused-service hotels above, a full-service Le Meridien with 231 rooms will open in downtown San Diego in June of 2026 and a 32-unit Autograph by Marriott will open in Carlsbad in May of 2026.

Investment Outlook

Key pressures limiting sales—such as brand-mandated PIPs and FRCMs, elevated refinancing costs, and exit demands from limited partners—are expected to persist as well as increased labor costs. CoStar’s CMBS tracking shows 14 San Diego hotels with loans maturing by year-end 2026. One property is already in special servicing, and seven others are flagged on watchlists, raising the potential for distressed sales in the near term.

Submarket Performance

Occupancy, ADR and RevPAR growth by submarket and trailing 12-month performance:

Source: CoStar

Final Outlook

Negative outlooks are not exciting. That said, Q4 of 2025 might be more of the same trend we saw this past summer, but there is no reason to believe it will persist deep into 2026. Why? Because of a combination of interest rate reductions by the Fed, a return to the office by many (have you driven rush hour lately?) and a marked improvement in government travel, we will see two percent RevPAR growth in 2026. The biggest challenges are not occupancy, rather they are average rate and costs. Government rates are flat; travelers are still shopping for the best deal, and some are cruising and using Airbnb and other short-term rentals. This is not 2022 and 2023. Those days are behind us. We need to forget 2019 as well and focus on what we can control in this new normal. 

Expenses like labor must be managed and automation must replace mundane tasks. EBITDA and net income are down 7.7% per occupied room and payroll is up 6.3%. That is quite a jump in 12 months! 

In this edition of my newsletter, I have added key trends for 2026. You will see that most are technological trends. It is our job as hoteliers to start taking the lead in technology—our team members need to learn how to use tech to become more productive and we need to cut costs somewhere. Don’t forget to focus on direct room bookings vs. third party to reduce commission costs—you might be surprised how much you can save now that about 50% of travelers use AI for their trip research!

The full article on my Top Lodging Industry Trends for 2026 will be published on CoStar’s Hotel News Now on September 30. 

Key trends for 2026:

• Voice Tech and Chatbots
• Facial Recognition Check-In
• Smart Room Technology
• Digital Check-In
• Cloud-based PMS
• Hyper-Personalization

To a strong finish in 2025 and an even stronger start to 2026.