Jan. 16, 2007 - Hotels in the East Bay have chalked up one of the Bay Area's strongest growth rates as the economy maintains a steady pace of expansion both nationally and locally.

The upswing might not last, though. East Bay lodging executives warn that the strong market has enticed construction of some new hotels in the region. And that could lead to increased vacancies and weaker room rates.

Yet for now, things look good for the hotel industry in the East Bay, according to reports from PKF Consulting Inc. and Smith Travel Research, which both track the lodging industry throughout the nation. Occupancy rates are up, and so are room rates in the Alameda-Contra Costa area, the reports show.

And the strength extends to numerous Bay Area markets, the studies show.

"Most areas are seeing occupancy starting to stabilize, and it will be easier for the hotels to charge higher room rates," said Kenneth Kuchman, a vice president with the San Francisco office of PKF Consulting. "The East Bay is also getting stronger."

The Smith Travel Research data shows that for the first 11 months of 2006, occupancy rates in the East Bay were up 5.4 percent from the same 11-month period in 2005. Average daily room rates were up 6.5 percent from the year before.

For all of Northern California, occupancy rates were up 0.4 percent for the 11 months of 2006 compared with the year before. Average room rates were up 6 percent, the Smith Travel data showed.

Over the first 11 months of the year, the PKF data shows, the East Bay's occupancy rates were 4.7 percent higher than 2005, while room rates were 5.2 percent higher.

The East Bay could be getting a boost from a relatively hot market in San Francisco. As rooms fill up and rates rise in San Francisco, some business and leisure travelers could decide to rent rooms in adjacent areas.

"There are certain nights when San Francisco is sold out completely," said Jan Freitag, a vice president with Smith Travel. "The business traveler might still stay in San Francisco. But it's a different story for the leisure traveler. There you can see that ripple effect."

The upswing is being felt at the check-in counters of hotels in the East Bay.

"The market is getting stronger, and occupancy is up considerably, and we also are seeing higher rates," said Ron MacConnell, general manager of the Four Points by Sheraton hotel in Pleasanton. "It's not just the regional economy improving, but also nationally."

Hotel managers in Oakland also saw a visible improvement in 2006 compared with 2005. The growth there is described as steady rather than dramatic.

"We are seeing a robust market," said Neil Korsgaard, director of sales with the Oakland Marriott City Center. "It's not growing by leaps and bounds, but it is stronger than the year before."

Although business is up at the Hilton Concord, general manager David Cantando notes that Contra Costa-area hotels suffered a decline in business in November compared with the same month the year before. He said hotels in Concord, Walnut Creek and Pleasant Hill were affected by the slump. Cantando added that it's too soon to tell if November was a hiccup or a warning sign of a more pronounced downturn.

East Bay inns must combat another challenge. Cantando said more rooms are being added to the East Bay arena.

"A number of hotels are under construction in the East Bay," Cantando said. "When they open, that will have a somewhat negative impact on marketwide occupancy."

Still, hotel managers believe the East Bay economy is resilient enough to handle temporary weakness in occupancy and room rates.

"We are seeing additional business being generated by companies that have moved to this area," MacConnell said.

He pointed to the rebound in the Tri-Valley employment market even after the software job cuts unleashed by Oracle when it bought PeopleSoft.

"Oracle moved a lot of business back to Redwood Shores, but some of those buildings were filled up by Kaiser and we have State Fund here," MacConnell said.

George Avalos covers the economy, jobs, financial markets, insurance and banks. You can reach him at 925-977-8477 or [email protected].

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Copyright (c) 2007, Contra Costa Times, Walnut Creek, Calif.

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