US Economy Lodging Impact
According to Bernie Baumohl of the Economic Outlook Group, a recession is unlikely. While Baumohl says the Trump presidency represents an unknown entity, tariffs, the Federal Reserve, and inflation are all in play. Immigration has undoubtedly played a role in this president’s agenda, and stagflation is possible. But stocks are up, credit spreads are tight, and spending is still alive and well.
Unemployment is still low at 4.3%, while gold prices remain near record highs. Are there cracks in consumer spending? Well, household debt is high, but net worth is at record levels. Further, 65 % own homes and 60 % own stocks. Not a bad picture!
Yes, Trump has vilified allies, saddled courts, and frustrated Americans with uncertainty. Will the midterm elections impact Trump’s moves? Will he change course, as most presidents have, when facing adversity? Consumer spending and retail sales are up, and people are still dining out even after inflation is factored in.
Hotels are dropping due to reduced international travel brought on by tariff wars, but average rates are declining faster than occupancy. More people are flying, but they are not all staying at hotels. Short-term rentals, cruise ships, and other sources of rooms are growing faster than hotels right now.
Recessions are psychological, not just economic, according to Baumohl. He sees 2.1 % GDP growth in 2025 and 2.4 % in 2026, driven by tax refunds, the Big Beautiful bill, and midterm elections. Inflation will likely end up 3.3 to 3.5 % in ‘25 and ‘26, respectively. Unemployment might creep up to 4.5 % in ‘25, and 4.7 % in ‘26.
San Diego Economy
Tourism remains a key economic pillar for San Diego. In calendar year 2024, the region saw 32.5 million visitors, with visitor spending rising to approximately $14.7 billion. The San Diego Zoo, SeaWorld, and Legoland generate substantial leisure visitors to the area. On average, attendance at these attractions drew nearly 8 million people annually.
The San Diego Convention Center delivered a record-breaking year in FY24, hosting 80 events with total attendance exceeding 663,000 and generating more than 865,000 hotel room nights. These gatherings produced an estimated $1.5 billion in regional economic impact, with Comic-Con alone drawing 135,000 attendees and $161.1 million in spending. Other major conventions included the American Society of Hematology (28,000 attendees; $125.4 million in economic impact) and the American Association for Cancer Research (23,200 attendees; $85.2 million in economic impact).
San Diego International Airport is undergoing a $3.8 billion redevelopment of its Terminal 1. The first phase that opened earlier this fall adds 19 new gates, expanded concessions, and modernized passenger amenities. Full completion is expected in 2028. This expansion is designed to boost air service, enhance the travel experience, and reinforce San Diego’s tourism economy.
More than 80 research institutes, including Scripps Research Institute and Salk Institute for Biological Studies, and five universities are in San Diego. This cluster of research in the Golden Triangle has created one of the strongest life science cores in the United States. Furthermore, Scripps Health has five campuses across the metro and announced plans to spend $2.6 billion on facility upgrades, further bolstering San Diego as a destination for medical tourism. According to the San Diego Military Advisory Council, the defense industry accounts for more than 350,000 regional jobs, nearly 25% of the economy. The Navy’s renewed focus on the Pacific theater of operation will result in a 60/40 split between the Pacific and Atlantic fleets, further solidifying San Diego’s status as a significant Navy hub. It is also why San Diego has one of the largest concentrations of millennials in the country, accounting for 25% of the population.
Tourism Performance – San Diego Lodging Industry
San Diego continues to hold one of the highest 12-month average occupancy rates among California markets, above 70%, reaching 72.9% through September 2025. This strong showing reflects the city’s diversified demand mix, which spans leisure tourism, defense installations, government travel, and large conventions. Still, the momentum that built up through late 2024 and early 2025 has started to ease.
A slowdown in domestic leisure demand, coupled with reduced government-related travel, weighed on performance during the summer. For the 12 months ending in September 2025, RevPAR remained in positive territory, changing by just 0.0%, underscoring weaker peak-season results. Looking ahead, RevPAR for the full year 2025 is forecast to dip into negative territory. The combination of new hotel supply and only modest demand increases will pressure the market. A rebound is anticipated in 2026 and beyond, though risks remain from slowing consumer spending, broader economic uncertainty, and softness in the government and leisure segments.
Corporate and Group Demand
San Diego benefits from a well-rounded economic base anchored by life sciences, military operations, higher education, and a globally recognized tourism sector. Visitors are drawn year-round to the city’s beaches, marine attractions, the San Diego Zoo, and family-oriented theme parks. Corporate and group demand is supported by activity at the San Diego Convention Center and research hubs such as the Golden Triangle.
Comic-Con, the city’s signature convention, is confirmed to stay through 2026. However, concerns have emerged about affordability, with rising room rates and limited budget lodging options challenging its long-term viability. The event typically attracts more than 135,000 attendees and remains a key annual demand driver. High construction costs, stringent regulations, and strong community input constrain hotel development activity. Despite these hurdles, notable projects are moving forward. The most prominent addition was the 1,600-room Gaylord Pacific Resort in Chula Vista, which opened in May 2025 and meaningfully expanded regional capacity.
Beyond that, nine hotels totaling 1,300 rooms are under construction, equivalent to a 1.9% supply boost by 2027. On the investment side, San Diego continues to attract buyers. Hotel sales in the 12 months through September 2025 totaled $338 million, well below the three-year average of $557 million but consistent with cautious trends nationwide. Investor appetite remains steady given the market’s strong fundamentals, though pricing and financing constraints limit transaction volume.
Leisure travel continues to anchor San Diego’s hotel demand, though this segment has cooled in recent months. Among submarkets, Northeast/Escondido led with RevPAR gains exceeding 6%, primarily driven by ADR strength within the city limits of San Diego. San Diego/La Jolla followed with roughly a 3% increase. Weekend travel, which typically makes up about one-third of total room nights, softened noticeably during the summer. Weekend RevPAR dipped into negative territory, signaling caution among leisure travelers, many of whom opted for cruises, short-term rentals, or shorter stays as they adjusted budgets. Still, San Diego outperformed other leisure markets thanks to its mild climate and year-round attractions. Weekday demand has become increasingly crucial in stabilizing results.
What’s driving the return of mid-week hotel occupancy?
The gradual return of business travel, particularly from the life sciences sector, where remote work is less practical, has bolstered mid-week occupancy. Even so, weakness in government travel, along with broader economic uncertainty, has created headwinds for weekday growth.
Group business—roughly 30% of overall demand—rebounded somewhat in the first half of 2025 following a disappointing 2024. The San Diego CBD, heavily reliant on the 2.6 million-square-foot San Diego Convention Center, was hardest hit during the downturn, though 2025 brought renewed momentum. Despite mixed performance, the CBD remains the top submarket for ADR and ranks second for RevPAR. San Diego/La Jolla leads in ADR and sits close behind in RevPAR performance. Downtown also continues to achieve some of the highest occupancy levels in the region, even with a hotel inventory that is two to three times larger than in most other sub-markets.
Overall, San Diego’s performance picture reflects resilience but also emerging cracks, as softening leisure demand and weaker government travel temper an otherwise broad base of room-night drivers.
San Diego Hotel Construction Activity
Unlike most US markets where hotel construction has slowed, San Diego is experiencing its most significant wave of new supply in more than two decades. The highlight was the May 2025 opening of the 1,600-room Gaylord Pacific Resort and Convention Center in Chula Vista, which instantly elevated the region’s position in the national development market. Currently, nine hotels totaling 1,300 rooms are under construction, expected to lift inventory by 1.9% through 2027.
The metro had historically maintained one of the smallest construction pipelines in California. That shifted with the Gaylord project, which vaulted San Diego into the top tier of development activity. Before 2025, openings were sparse: none in 2022, two totaling 269 rooms in 2023, and a single 179-room property in 2024. Another significant addition debuted in August 2025 with the 200-room Jamul Hotel Casino in the South/East submarket. Developed by the Jamul Indian Village, the 16-story tower features direct access to the casino, a rooftop pool and bar, spa, meeting facilities, and other upscale amenities.
The construction pipeline is dominated by projects from national brands, mainly in the upscale and upper-midscale tiers, with extended-stay products well represented. The 231-room Le Méridien San Diego Downtown is among the most notable projects. Slated to open in fall 2026, the hotel will be part of a 39-story mixed-use tower downtown, blending hotel, residential, and commercial space. Overall, the new development is spread across multiple sub-markets, though downtown and the South/East area account for the largest share of additions. The mix skews toward mid-scale to upper-midscale formats, aligning with national construction trends.
Hotel Sales Activity
San Diego’s hotel investment market carried forward the momentum of 2024, when deal volume surged more than 50% year-over-year. Over the 12 months ending in September 2025, sales totaled $338 million, still below the three-year average of $557 million but broadly consistent with a national slowdown in hotel transactions. Deal activity was uneven, with fewer overall closings but several significant transactions boosting total volume.
In January, Noble Investment Group purchased the 334-room DoubleTree by Hilton in Downtown San Diego for $67.2 million ($201,000 per key). The property, last renovated in 2021, has since undergone additional upgrades over the past six months and was recently rebranded as the Courtyard San Diego Downtown. In June, Blackstone sold the 288-room Residence Inn La Jolla to Capital Insight for $79.3 million ($275,500 per key), adding significantly to mid-year sales. September brought another high-profile transaction when Pyramid Global Hospitality purchased the 147-room AC Hotel San Diego Downtown Gaslamp Quarter for $48.7 million ($331,300 per key). The property had opened in March 2023, and earlier in 2025, its prior owner, The Briad Group, secured a $40 million CPACE loan to restructure debt.
Other notable transactions included the $36 million acquisition of the 145-room Courtyard San Diego Carlsbad in February ($248,000 per key) and the $17.4 million sale of the 110-room Consulate Hotel ($158,182 per key). The largest deal in recent years was the July 2024 sale of the Hilton La Jolla Torrey Pines. Braemar Hotels & Resorts sold the 394-room property to JRK Property Holdings for $165 million ($419,000 per key). The asset, operating under a ground lease, transacted at an 8.9% cap rate based on trailing NOI. Braemar disclosed that about $40 million in capital improvements are needed, and the sale helped resolve its 2024 debt maturities.
Conversions have also shaped the investment landscape. In August 2024, the San Diego Housing Commission purchased the 165-room Extended Stay America Hotel Circle for $57 million ($345,600 per key), one of the highest per-key prices for a mid-scale asset in years. Earlier, Stardust Senior Communities acquired the 34-room Stardust Inn for $8 million ($234,000 per key) and repurposed it for senior housing.
Market participants anticipate that hotel transaction volume will remain below historical highs. Key pressures driving limited sales, such as ongoing brand-mandated PIPs, elevated refinancing costs, and mounting exit demands from limited partners as fund timelines mature, are expected to persist in the near term.
I sincerely hope this information helps you finalize your business plans and budgets. I am happy to have an exploratory call to see if you need additional support within hotel operations, litigation or development.
