Itineraries: A Hotel Boom Comes to Texas
One bellwether measurement is revenue per available room, which is the hotel industry’s average daily room rate multiplied by its occupancy. Revenue per available room has had 83 straight months of year-over-year growth in the United States. In the past five to six years, hotels have also had the highest occupancy rates the industry has ever experienced, according to STR.
The number of new hotels in Texas is notable. In 2017, Marriott plans to open eight hotels in Austin, seven in Houston and 23 in the Dallas-Fort Worth area, according to the company. Ninety-two other Marriott hotels are in the planning stages for the three metro areas. Hilton says it is planning for 75 new hotels there. InterContinental Hotels Group has more than 100 hotel projects in the Austin, Dallas and Houston metro areas, including the Candlewood Suites, Crowne Plaza, Even Hotels, Holiday Inn Express, Holiday Inn, Hotel Indigo, InterContinental Hotels and Resorts and Staybridge Suites brands.
Austin is home to the state capital; the University of Texas at Austin, a campus with 50,000 students; and a long list of technology companies. Its growing recreation and dining scene is attracting more leisure travelers, filling guest rooms on weekends and making the city “more of a seven-day-a-week hotel market,” according to Tim Powell, the managing director for development for Hilton’s southwest region.
Houston, by contrast, “has always been a Monday through Thursday hotel market,” because so many of its travelers are there for business in the oil and gas industry, he said. The city is trying to diversify its economy by building meeting services.
“The state is looking for supertanker hotels to put in next to convention centers,” said Lauro Ferroni, the global head for research for the hotels and hospitality group at JLL, an international real estate investment, management and research firm based in Chicago. A 1,000-room Marriott Marquis recently opened next to the Houston convention center.
In the Dallas area, a number of large mixed-use developments are going up. One area, called “the $5 Billion Mile,” is being built in Frisco, in easy driving distance from both downtown Dallas and Dallas-Fort Worth International Airport. Anchored by a new Dallas Cowboys headquarters, training center and indoor stadium, the area will include corporate office space, stores and housing. Seven hotels have been announced so far.
All three metropolitan areas have comparatively few environmental regulations and an expanse of cheap land, and they put a premium on rapid approval of development, Mr. Powell, of Hilton, said.
Local and state governments, known to favor spending on business interests over social programs, compete to offer sales tax breaks, real estate tax abatements and other incentives to draw in developers.
They also “invest in roads and other infrastructure, which helps attract manufacturing, fill office space, and that drives demand for hotel rooms,” Mr. Jacobs said.
A move toward repurposing unused office space and other buildings, along with a tax credit, has also made hotel projects possible. Two examples are the new Westin in Dallas and a JW Marriott in Houston, Mr. Ferroni said. These kinds of projects would not be viable without government financial support, he said.
New boutique and lifestyle hotel brands like Element and Aloft that started in Miami, San Francisco and New York are also now making their way to Texas, Mr. Ferroni said.
There are always risks of overbuilding, Mr. Powell said. Even in the quick-build ecosystem of Texas, the time it takes to go from researching the idea of a new hotel to actually opening it can be three years or more. In that time, energy prices can significantly affect the Texas economy. “Because oil and gas prices have been low for the past few years, some projects in Houston have slowed or stalled,” Mr. Powell said.
The overall risk to hotel companies like Hilton and Marriott is limited, though, because they no longer own the majority of the properties that bear their name. Instead, they lease their brand names to independent developers, owners and real estate trusts.
Hotel chains have become more “asset light” in the past 10 years, said Jeff Higley, the vice president for digital media and communications and the editorial director of Hotel News Now. “They want to manage and franchise the properties but don’t want to have real estate on their balance sheets.”
STR estimates that the hotels under construction in these three areas are owned by more than 60 companies.
Hotel owners in Texas are generally local developers and corporations. “It’s a connected community,” Mr. Powell said. “If you’re already in the business, you’re likely to hear before an investor in New York or San Francisco when land is available for sale. You know the permitting process and what you need to do, so you can move quickly.”
Of course, there are downsides to all this construction. Two of the metro areas, Houston and Dallas, have struggled with high levels of air pollution, and construction contributes to that through land clearing, the operation of diesel engines, working with toxic chemicals and dust creation. Surface water runoff at the construction site can also carry pollutants into local waterways and groundwater.
The proliferation of hotels also means more competition, even within the same parent companies. Hotel builders, however, are betting that the overall growth in convention, business and tourist travel will more than compensate.
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