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Shell City is probably on the Californian Coast. I did some research, and Baywatch, the show David Hasslehoof is popular for, took place in California.
This is a really tough topic. Where is Shell City actually located? It's most likely you'd find David Hasselhoff in California, however, Bikini Atoll is approximately 9600 km (5965 miles) from California and it is therefore nearly impossible for SpongeBob and Patrick to walk there in six days. Really, it depends on the direction they were travelling. If they travelled South-West, it's possible that Shell City could be on the East coast of Australia. Even likelier, they could've travelled East to Hawaii.