The laws of supply and demand that led to a big surge in San Francisco hotel rates could soon shift in favor of supply, as a major expansion project at the city’s Moscone Convention Center will likely hurt lodging demand.

The trade publication Meetings and Conventions reports that major work on the Moscone Center is due to begin in April and will continue for two years. The project has local hoteliers “revising their strategies to attract other business in the interim,” the publication said. The center usually hosts some 70 major gatherings each year such as the huge Dreamforce event put on by Salesforce, Oracle’s OpenWorld and many others.

The Moscone Center said on its website that the Moscone North and South sections of the complex will be closed from April through August of this year.  But the center is not shutting down completely: “Moscone West will remain open and is fully booked,” the Moscone Center said.

The $500 million expansion project was considered necessary to accommodate the increasing demand for large conventions in downtown San Francisco. The Moscone Center estimated that San Francisco is losing $2.1 billion in convention spending from 2010 through 2019 “as  conventions look for larger and more contiguous exhibition space” found in other big convention cities like Las Vegas or Chicago.

Meetings and Conventions reports that the project has thus far led to the cancellation of 11 conventions, and San Francisco Travel, the city’s destination marketing company, predicts the work could cost the city 490,000 lost room nights over the next two years.

San Francisco hotels have been going through a major boom in business over the past several years as heavy demand from conventioneers, business travelers and tourists outpaced room supply. The city’s average annual hotel occupancy rate jumped from 65.8 percent in 2011 to more than 84 percent in 2015 and 2016.

But now the pressure is on hotels and the visitor industry to keep filling those rooms as conventions play a smaller role. Hoteliers are planning to extend their marketing to new types of visitors who might have otherwise stayed farther away from the city center, and to attract smaller groups instead of giant convention crowds.

According to data from Trivago, the average online rate for hotel rooms in San Francisco during February was $228 a night, down 5.8 percent from a year earlier. Whatever happens, hotels are expecting a return to the boom years after the convention center work is finished in 2019; the entire facility is said to be fully booked during the post-construction months.

Any blip in convention demand isn’t deterring an ongoing expansion of hotel capacity in San Francisco. For example, Sir Richard Branson’s fledgling Virgin Hotels just announced it plans to open a newly built San Francisco property this summer. Located next to the Moscone Center at 250 Fourth Street, South of Market, it will be the second Virgin property; the first opened in Chicago in January 2015. Others are under construction in Dallas and New York.

What’s your favorite San Francisco hotel? How much did you pay for it? Please leave your comments below. 

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