The lodging industry in San Luis Obispo County continues to grow, but at a slower pace than in recent years.
Bed tax, or transient occupancy tax, revenue — charged to guests of lodging properties — was up 6.5 percent countywide in the first half of this fiscal year, compared with the previous year. By comparison, it grew 7.3 percent in the fiscal year ending June 30, 2016, and 15.35 percent in fiscal 2015.
Chuck Davison, president and chief executive officer of Visit SLO CAL, a county tourism marketing organization, offers one key reason for the slowdown: There are more hotel rooms on the market. Last year, for example, there was 2.1 percent more room inventory in the county than the previous year, he said.
Still, thanks to increased supply, Davison noted, 8,260 more room nights sold last year than in 2015, up 0.4 percent.
February in particular was slow. Hotel room occupancy countywide fell by 8.9 percent then, and revenue per available room was down 10.1 percent compared to last year, according to data by Tennessee-based research firm STR. Average room rates also fell in February.
Inclement weather, and the lure of the slopes, was mostly responsible for this winter’s sagging lodging numbers, especially when compared to last winter, which was far drier.
“There was the best snowfall in the California mountains in a decade, plus a very wet coastal winter, so given the choice, people are heading to the ski areas,” Davison said. “The last four years when there was no snow in the mountains, people came to the ocean. So there was a lot of pent-up demand for skiing.”
Coastal regions in particular experienced a drop in February — with occupancy falling 11.1 percent in Pismo Beach, 9.3 percent in South County and 14 percent in Morro Bay. San Luis Obispo, which also relies on coastal tourism, was down 6.8 percent.
Lori Keller, chief executive officer of Martin Resorts, said that, of the company’s three Pismo Beach hotels, one “had flat occupancy in February compared to prior year and the other two were slightly down.”
Keller blamed both the draw of ski destinations as well as the timing of rain.
“One to 2 inches fell over the Presidents Day weekend, which is our busiest weekend of the month,” she said.
Jeff Anderson, part owner of the Anderson Inn, on the Embarcadero in Morro Bay, said this winter was the first time the inn received a significant number of cancellations since opening 10 years ago. Anderson took the opportunity to perform improvements on some of his rooms in anticipation of a busy summer.
“We’re already getting a lot of those bookings,” he said.
North Coast hit with double whammy
Hotels along the North Coast suffered yet another weather-related setback with the closure of Highway 1 in February.
“A good portion of the traffic to Hearst Castle comes down Highway 1, especially when you’re talking about international business,” Davison said.
Year-over-year occupancy in February was down 19.9 percent in San Simeon and 15.4 percent in Cambria.
Matthew Ramey, assistant general manager of the Ragged Point Inn and Resort in San Simeon, confirmed that business was slower this winter, but he declined to provide numbers.
“We are no longer seeing the traffic from people traveling from Los Angeles to the Bay Area,” he said.
Paul Panchal, owner of the Sea Breeze Inn and Silver Surf Motel, both in San Simeon, said occupancy at his properties has been down 10 to 20 percent in the first quarter of this year, compared to past years. He noted that winters are almost always slow.
“I don’t know how much to pinpoint on the closure, on the winter season, or the rainy weather,” he said.
If the Highway 1 closure continues into summer, the effect could be devastating for San Simeon tourism, Panchal said. Summer is when his properties rely heavily on international travelers.
Dirk Winter, owner and president of Moonstone Hotels, said that February occupancy was down at his Cambria hotels, Cambria Pines Lodge and Sea Otter Inn, but places the blame on rain-related cancellations.
“Historically we have not seen any negative effect with long-term closings of Highway 1,” he said. He pointed out that Cambria is accessible by Highway 46, although the road closure “could have some initial effect on cancellations for those unfamiliar with alternate routes.”
In isolated San Simeon, Panchal is lowering rates and advertising more heavily within San Luis Obispo County and other parts of California.
“We’re getting the word out that there are alternate routes to get here, and we’re all open,” he said. “We’re hoping locals will support us during this hard time.”
North County is a bright spot
Hoteliers in the North County are faring better. Atascadero saw a 16.1 percent boost in occupancy in January and a 4.4 percent increase in February. Paso Robles saw a 6.4 percent increase in January, but a 1.9 percent decrease in February.
Davison attributed the North County growth to two new properties that opened in 2015, which filled new niches and introduced “North County to a new customer who wasn’t currently staying there.”
In Paso Robles, Allegretto Vineyard Resort opened in September 2015, catering to the high-end traveler. The 171-room hotel sits on 17 acres in the midst of a vineyard with amenities such as a restaurant, wine tasting, a spa and full-service cabanas. General manager Anna Olson said that it is the first destination resort for the Ayres Corp., which is based in Costa Mesa.
In Atascadero, SpringHill Suites, an all-suite Marriott property with 130 suites, opened in June 2015. According to Marriott representatives, the hotel has had an average occupancy of 75 percent. Davison noted that it fills a need for additional meeting and conference space in the North County.
Although Atascadero occupancy is up, rates have fallen this winter, including a 6 percent drop in February, compared to the previous year.
Amar Sohi, general manager of the Atascadero Holiday Inn Express & Suites, pointed out that the opening of SpringHill Suites almost doubled the number of rooms among large chain hotels in the city. The Holiday Inn Express experienced lower occupancy from October through December, compared to the previous year, he said.
It was the first time that had happened since the hotel opened in 2008. Business began to recover in January once the hotel lowered rates by about 10 percent on weekdays and eliminated its two-night minimum on weekends.
“I don’t think the lodging industry in Atascadero is doing as well as it may seem, but I am cautiously optimistic,” Sohi said. “We still need the new inventory to be fully absorbed, and that may take another year.”
In contrast, Keller said that the Paso Robles Inn, another Martin Resorts property, has remained strong this winter, despite the rain and Allegretto’s opening. She credits the rising reputation of North County as a wine tasting destination. The hotel is planning a 23-room expansion, which is expected to be complete by September 2018.
“We are very bullish on Paso Robles,” she said.
Countywide room rates fell in February
Room rates decreased 1.3 percent countywide in February, with the greatest declines in Atascadero, the Five Cities and Pismo Beach. This counters a trend where the average daily rate in the county rose 5.3 percent last year versus 2015, according to Davison.
Although winter room vacancies have played a part in rate decreases, rate setting is not always a simple supply-and-demand formula, observed Keller, noting that hotels aim for the best balance between occupancy and rate to maximize profit.
“It’s akin to washing five cars for $5 each versus washing three cars for $10 each,” she explained. “Washing fewer cars generates more revenue at a lower cost.”
Countywide, revenue per available room was up 3.5 percent year-over-year as of December.
Keller said that the lodging industry is as sophisticated in price setting as the airline industry, often adjusting rates multiple times a day based on “market conditions including weather, market demand, competitor pricing, promotions and overall economic factors.”
Economic forecasts suggest that the lodging market will continue to grow in San Luis Obispo County, but at a slower pace.
Davison anticipates a 5 to 6 percent annual growth rate in transient occupancy tax, or bed tax, revenue over the next two years. And several new hotel projects — which will add to the hotel room inventory as they open in the next two years — will draw more visitors, he added.
The upscale Inn at the Pier in Pismo Beach is scheduled to open in the summer. The beachfront hotel, owned by Irvine-based Pacifica Hotels, will offer 104 rooms and suites, a rooftop pool, restaurant, bar and 1,200 square feet of meeting space.
In San Luis Obispo, two hotels are opening next year in downtown San Luis Obispo, the first of their size to do so, Davison said.
Hotel Serra is opening in early 2018 as part of a mixed-use project on Garden Street. The hotel will have 65 rooms, a spa and restaurant.
Hotel San Luis Obispo, projected to open in late spring 2018, is in the Chinatown area. The $50 million project will feature 78 rooms, two restaurants, a bar and lounge, event spaces, pool, full-service spa and underground parking.
Several other projects around the county are also in the early construction, approval or planning stages.
This hotel construction momentum — coupled with the flip side of heavy rain — may be a boon to the lodging industry this spring and summer and in the coming year, Davison said.
“The lakes are filling, the hills are greening, and skiers will return to the coast,” he predicted.