In the wake of the pandemic, travelers to San Diego have become increasingly price-sensitive, leading to significant shifts in the dynamics of hotel pricing and occupancy across the region. Previously, higher occupancy rates typically correlated with rising average daily rates (ADR), reflecting a phenomenon known as compression as high demand drove rates. However, in 2022 and 2023, this relationship reversed, with higher ADR now resulting in lower occupancy as travelers prioritize cost savings.
Although inflation has moderated since 2022, prices in January 2024 remained, on average, 23% higher than in January 2019. While average earnings for U.S. workers have begun to catch up in recent months, many Americans are still feeling the strain of higher prices, prompting them to seek ways to stretch their budgets.
Despite these challenges, consumer spending has remained resilient, bolstering the U.S. economy and averting a potential recession. Nevertheless, as prices continue to rise, individuals are forced to make trade-offs, including decisions about future travel plans. Questions about affordability, accommodation choices, dining options, and sightseeing priorities are increasingly prevalent.
According to data from Future Partners, price concerns have consistently ranked as the primary deterrent to travel since the pandemic began, with approximately 40% of respondents citing travel expenses as a significant factor in their decision-making. In San Diego specifically, ADR at hotels has seen a substantial increase since 2021, rising from $165 to $210 by the end of 2023, marking a 27% jump over a relatively short period.
Examining San Diego’s submarkets reveals a notable shift in traveler behavior. Previously, higher occupancy levels in certain areas drove up ADR as demand outstripped supply. However, since the pandemic, higher ADR has resulted in decreased occupancy, as travelers seek more affordable options elsewhere.
A graphical representation of this trend illustrates the inverse relationship between ADR differentials and market share across subregions. There are two axes:
- The horizontal axis looks at the percentage difference between ADR in a subregion of the county (such as Downtown or Mission Bay) and the countywide average. For example, if the Downtown ADR is $110 but the countywide average is $100, then that differential is 10%.
- The vertical axis shows how many room nights a submarket sells compared to the total number of room nights available in that submarket. For example, if a subregion like Downtown has 25% of the total rooms available in the county and sells 25% of the county’s room nights, the value is 100. If Downtown sells 30% of the rooms in the county, the value increases to 120, because its share of available room nights remains at 25%.
The graph above illustrates the inverse relationship between ADR differentials and market share across subregions since the pandemic ended. Prior to the pandemic, ADR accounted for only 10% of the variation in market share between submarkets. However, by 2023, ADR explained 38% of the variance, indicating a heightened sensitivity to price among travelers.
As a result, hoteliers must be vigilant about pricing strategies and competitive positioning within the market. With travelers increasingly willing to explore alternative accommodations to save costs, competition among establishments is expected to remain intense. SDTA provides comprehensive ADR data for each of the region’s 11 submarkets on a weekly basis, accessible through our Research page.
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