Fairmont and Manchester Financial To Build Region’s Largest New Hospitality Property of Past 15 Years
By Lou Hirsh CoStar News
January 19, 2023 | 2:39 P.M.
Developers are planning a $550 million luxury hotel spanning 1,160 rooms on the downtown San Diego waterfront as operators look to capitalize on an improving tourism climate with what would be the largest hotel built in the region in 15 years.
Fairmont Hotels & Resorts, a division of Paris-based Accor, and San Diego-based developer Manchester Financial Group this week announced an agreement to develop a 36-story hotel off Pacific Coast Highway at Broadway on the North Embarcadero, a popular tourist spot about 2 miles from the San Diego Convention Center.
“Opening as our largest-to-date Fairmont in the U.S., this project represents an incredible opportunity to bring the signature luxury experience for which Fairmont is known around the globe, on an unprecedented scale and magnitude to downtown San Diego,” Fairmont CEO Mark Willis said in a statement from developers.
The hotel would be the San Diego region’s fourth-largest by room count at its expected completion in 2027, according to CoStar and public data. Developers have obtained necessary entitlements from local government agencies and are looking to begin construction within the next year, after obtaining financing.
Major U.S. tourism cities including San Diego have seen a significant rebound in travel during the past year, though most hotels have yet to return to pre-pandemic levels for convention and other large-group business.
Plans for Fairmont Manchester San Diego include six dining venues, a lobby bar, fitness facilities, rooftop pool and more than 120,000 square feet of indoor and outdoor meeting space. The new hotel would be the region’s first topping 1,000 rooms since the 2008 opening of the 1,190-room San Diego Bayfront Hilton, also near the convention center.
City Can Absorb New Capacity
Emmy Hise, senior director of hospitality analytics for CoStar Group, noted that hotel additions to downtown San Diego's central business district have been rare in the past decade, with none opening in that neighborhood since 2019 and just one under construction and set to open later this year.
“However, the San Diego central business district can support the new rooms due to a strong leisure segment and as a popular conference location with a waterfront convention center,” Hise said.
The San Diego region ended 2022 with annual hotel occupancy at 72.6%, up 17.7 percentage points from the prior year, according to hospitality data firm STR, a CoStar Group company. The region’s total hotel revenue rose 45.5% from the prior year to more than $3.4 billion.
Hise said the pandemic caused downtown San Diego’s occupancy and room rates to decline. The region had difficulty absorbing the nearly 1,300 new rooms added to the area during 2018 and 2019.
“Had the pandemic not occurred, I believe that the San Diego central business district would have absorbed the new hotel rooms by 2020 year-end,” she said.
The addition of a luxury-class downtown property like the Fairmont should help boost average room rates in San Diego, according to Hise.
“The luxury segment has experienced the most significant rate gains in the past few years, and luxury hotels generally don’t drop rates even in recessionary periods,” Hise said.
Manchester Financial and Fairmont did not immediately respond to requests from CoStar News for additional comment on regional hotel demand and project financing prospects. Developers are leasing the 2-acre development site within a larger 12-acre parcel owned by the U.S. Navy.
Manchester Financial previously sold the remainder of the leasehold to biotech developer IQHQ, which is planning a $1.6 billion, mixed-use office and lab development next door to the planned hotel. The hotel and biotech project are both planned for a site that once housed a Navy operations campus with 1940s-era buildings that were replaced in 2020 with a new downtown office tower.
Manchester Financial Group, led by Douglas Manchester, developed San Diego’s two largest hotels by room count, both located adjacent to the convention center, in the 1980s and 1990s. The 1,628-room Manchester Grand Hyatt and the 1,362-room Marriott Marquis San Diego Marina were since acquired by Host Hotels & Resorts of Bethesda, Maryland.
Manchester previously teamed with Fairmont on projects including the 1,048-room Fairmont Austin in Texas. San Diego native Manchester, 80, has developed several office and hotel projects in the region and has been working with the Navy for the past 20 years to plan new elements for their downtown property.
“From my days selling papers at the Coronado Ferry when I was only 10 years old, I’ve had my eye on what I think is one of the most outstanding stretches of land in the world, and it is such an honor to play a role in its revitalization,” Manchester said in the statement from developers.
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