As market revival continues, Santa Cruz hospitality industry expects boost from new La Bahia, Cruz hotels

Renderings of the proposed Cruz Hotel (top) downtown and the beachfront La Bahia project.
(Via City of Santa Cruz (top) and Leddy Maytum Stacy Architects)

Both new hotels — aiming to open in Santa Cruz in the next few years — will expand the options for visitors. The local hospitality business is now thriving. What difference might the hotels make?

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The pandemic spelled big trouble for just about every business and industry under the sun, but the crippling of Santa Cruz County’s top industries and employers has been a uniquely challenging blow to the local economy.

The good news: Hospitality is back, after tourism dropped by as much as 53% in 2020.

With travel to most places returning to a point of relative normalcy, local occupancy has significantly improved — though still not at pre-pandemic levels for most months. As of the latest numbers, from the end of June, countywide occupancy stood at 72%, down from 80% in June 2019.

Daily rates, though, have mostly surpassed those of previous years due to sustained, heightened demand. Those staying in Santa Cruz County in June paid an average of $229 per night, up from $211 in June 2019.

“Average daily rates are up about 10%, more than occupancy rate, which is up by single-digit percentages,” said Visit Santa Cruz County CEO Michael Martelon.

With a planned hotel at the Boardwalk-adjacent La Bahia property, with about 155 rooms, now targeting a late 2024 opening, and the 232-room Cruz Hotel, which aims for a groundbreaking in the second half of 2023 and a 2025 completion, how might these options change the local hospitality landscape?

The two hotels together would add nearly 400 rooms to the county’s supply of 4,500-5,000 rooms. That’s about an 8.5% increase.

It’s not just the number of rooms to be added, of course, but the level of hospitality and price. There are no “luxury” hotels in Santa Cruz County, and daily rates are highly variable, and change quite a bit from season to season. That said, the best approximation for current summer daily rates are:

  • $79 - $250 for low-end options.
  • $250 - $400 for midrange options.
  • $400 - $600 for high-end options.

The Cruz Hotel aims at a midrange daily rate as it becomes a key part of a strikingly new look for downtown.

La Bahia would target an upper-scale part of the market.

“The question is, what kind of additional facilities will they have that will attract a little bit different clientele than what we usually see at the Dream [Inn], Hyatt, Chaminade and [Hotel] Paradox,” said Santa Cruz County Chamber of Commerce CEO Casey Beyer.

“In that industry, if there’s more competition, that means there’s more opportunity for bringing in tourism,” he said. “If, say, the Dream [Inn] is full, and they want to be in Santa Cruz, they’re going to be able to find another hotel.”

Renderings of the proposed Cruz Hotel at Front and Laurel streets.
(Via City of Santa Cruz)

The plans for the new hotels certainly sound and look exciting, with Beyer referring to the Cruz Hotel as a “game-changer” for downtown, since there are currently no hotels in the district bounded by Front, Cedar, Laurel and Water streets.

“We don’t have a lot of high-end or luxury properties, and that’s a big opportunity that we’re missing,” said Martelon, speaking of La Bahia and Cruz Hotel’s potential.

Dan Smart, Dream Inn’s director of marketing and sales, agrees.

“This town needs more hotels and has demand for more hotels. All that will do is make all of us more competitive,” said Smart. “We need some different products, too; there’s only three or four ‘great’ hotels, I would say.”

Will the new La Bahia really change the game?

“When they come in, we’ll see what their star rating looks like, what their location looks like, and what they will offer,” said Smart. “New, nice hotels will increase the demand for our market, and keep those new market visitors to keep coming for more fun and eclectic options.”

The market revival

Smart remembers the speed with which business came to a grinding halt.

“We saw an immediate cancellation and decline in reservations rolling into April,” Smart said of the early COVID days of 2020. “As soon as shelter-in-place was activated, we went all the way down to the smallest occupancy this hotel has ever seen in 50 years.”

However, as soon as Gov. Gavin Newsom opened California back up in June 2021, Smart said he noticed a fast reversal.

“Pretty much as soon as that happened, we saw an immediate influx of leisure visitors ready to get out and travel,” he said. “And they were looking to come right away.”

As four new housing projects — aiming to add 185 units around lower Pacific Avenue and Front Street — begin to take...

Smart also observed a shift in the market.

“Our local market activated right away, and the first people we heard from were parents of students from Santa Cruz and Monterey that just needed to get out of the house for a night or two,” he said, adding that 60% of the hotel’s calls upon the state’s reopening were from within a 30-mile radius.

But some change brought forth by the pandemic has remained.

“In 2019, our booking window used to be about a month or two out, and now it’s still zero to 14 days,” said Smart. “Also, we’ve seen Orange County and Los Angeles enter our top three markets.”

He said this is likely due to the nature of travel over the past two years.

“There were different travel restrictions in different parts of the country – for example, if you weren’t vaccinated, you couldn’t go to Hawaii, Europe, Canada and more during 2021,” said Smart. “A lot of those people that would typically take a two-week trip to one of these destinations now opted for two-week drive trips through California. There was more demand coming our way from different markets.”

That phenomenon is, yet again, a direct result of the pandemic.

“Demand for resort destinations was epic in that they were perfect for laying low through the pandemic, and with an increase in demand, rate goes up,” said Martelon. “Once a rate is established, it’s not in the lodger’s business plan to bring it down as long as demand is strong.”

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