Market Report: Houston, Texas

HOUSTON, Texas—In the weeks after Hurricane Ike made landfall on 13 September and devastated Galveston, Baytown and other coastal cities in Texas, inland Houston received a boon in occupancy from displaced residents, first responders and insurance agents that insulated the market from the lagging average-daily-rate growth and revenue-per-available-room growth throughout the rest of the country.

Source: STR These monthly gains helped push Houston above national year-to-date averages as well.

Source: STR The property-level perspective

Hilton Americas-Houston

While those numbers suggest a broad-reaching level of success, performance varied from property to property.  At the Hilton Americas-Houston, a 1,203-room convention hotel located downtown, GM Joe Palmieri said, “2008 has been a record year for us.” While most of the banquets and convention groups cancelled in light of the hurricane, the influx of emergency workers and insurance personnel yielded occupancy growth in both September and October, he added.

Convention hotels in the market have fared well in general. According to data from STR, Houston was one of only two major U.S. markets to post positive year-to-date growth in all three major performance metrics through October.

Source: STR About 20 minutes north, the Americas Best Value Inn & Suites – Platinum fared “pretty OK,” according to GM Bimal Patel. He said the property had a better year-over-year occupancy in October 2008, which was helped in large part by emergency workers and displaced residents, 20 percent of whom used FEMA coupons for temporary housing. 

Americas Best Value Inn & Suites – Platinum

“In Houston, they coordinated it very well,” Patel said of the government-issued coupons. “It was very well organized—not that many complications.”

He also attributed part of the occupancy to the normal traffic generated by Houston’s oil industry.

Despite the strong years for those two properties, performance was not so rosy at the Baymont Inn & Suites Intercontinental Airport/Humble. The 50-room property, which opened in late October, lacked the exposure to tap into the burgeoning market.

Baymont Inn & Suites Intercontinental

“We did pretty well on the weekdays. On the weekend, it’s been basically dead,” said Ashish Patel, GM and owner of the property. “I didn’t get any of those workers because I opened up way afterwards. Since last week, it’s been very slow,” he added.

Bimal Patel saw a similar slowdown in recent weeks, as occupancy dropped from 70 percent to as low as 50 percent. “At the moment, we do see everything dying down right now. It’s slowed down form the last two weeks.”

He added leisure travelers have “stopped coming” in general.

Deals and developments

Though the positive aftereffects of Hurricane Ike have already begun to wane, Houston’s stable and balanced economy still makes it an attractive market for development, developers said.

“It has not been affected to the extent of the rest of the country due to the stability of its oil and energy business, the Port of Houston and NASA,” said Paul J. Sacco, senior VP of development for select service hotels at Starwood Hotels & Resorts Worldwide.

The chain is overseeing construction of the 123-room element Houston Vintage Park.

Slated to open in the first quarter of 2009, the project has progressed without delay, despite a worldwide economic downturn that has forced many hoteliers to refinance, hold or cancel projects altogether.

Further out from the city in The Woodlands, Avia The Woodlands experienced a slight delay as developer LodgeWorks took longer to line up the necessary financing required in the current market, said Tony Issac, president of the company.

Avia The Woodlands

“We had to re-sort the amount of debt,” he said. “We wound up putting (in) more equity.”

The 70-key boutique property, which is financed in conjunction with Burlington, MassachusettsColumbus, Ohio-based RockBridge Capital, is slated to open in November 2009.

In addition to the element Houston Vintage Park and the Avia The Woodlands, there were 40 projects representing 4,339 rooms currently in construction in the Houston market through October. There were an additional 22 projects (2,083 rooms) in the final planning stage and 93 hotels (7,827 rooms) in the planning stage.

Through October, the Houston market had 628 hotels representing 63,608 rooms in its existing supply.

Source: STR

Source: STR  

Market outlook

Even after the influx of first responders begin to check out of Houston-area hotels, some of the sources interviewed for this report said that the city’s balanced economy will still attract enough business travel to insulate the market from any major drop-offs caused by the recessionary economic climate.

“The big firms have continued to travel,” Palmieri said. “They continue to do business in a very strong way in Houston.”

He added that he does expect a down year in 2009. Meetings and convention bookings are down, but he said they have been off pace for the past four years. In 2010 and 2011, though, the pace is strong.

“The future looks pretty bright,” Palmieri said. “We just have to get through ’ ‘09, which will be a pretty tough, challenging year for us.”

Ashish Patel seemed optimistic about the corporate travel outlook as well, even despite occupancies that hovered around 20 percent to 30 percent in the weeks after he opened the property.

“Being at the airport, I’m not worried as much as being somewhere else. People still need to fly and will still look for a room close to the airport.”

But like Palmieri, he did anticipate some decline in 2009.

“(Occupancy) will go down, five, ten points, but it shouldn’t’ be too bad,” he said.

Bimal Patel is far less optimistic about the market outlook.

“For my property, I’m a little skeptical,” he said. “I’m just looking at week by week. I do see a downturn. … Instead of coming four days or four nights, (business travelers) come one night. They’re just cutting back on everything.”