HOUSTON—Hoteliers in Houston were a happy bunch during most of 2014, recalled Jeff Fuller, GM of the Royal Sonesta Houston.
The market saw growth in the three key performance measures of occupancy, average daily rate and revenue per available room. According to data tracked by STR, parent company of Hotel News Now, occupancy in Houston increased by 3.9% to 71.7% during 2014; ADR grew by 5.6% to $106.91; and RevPAR was up 9.7% to $76.71.
“Every meeting you could hear people talking a little louder, smiling brighter, telling a few more jokes,” Fuller said.
But then oil prices dropped off sharply, with crude oil prices falling to as low as $45 a barrel in January from more than $75 a barrel just two months before. The mood in the city’s hotel industry shifted somewhat after the drop.
“Now, they’re not so talkative,” Fuller said during a recent roundtable discussion moderated by Hotel News Now at the Royal Sonesta.
Other hoteliers taking part in the discussion agreed that the sudden fall in oil prices was a concern. Oil companies, which the hoteliers said provide a big chunk of business for Houston hotels, have laid off thousands of workers and the Oil & Gas Journal reported the number of oil rigs in use in the United States is at its lowest level since March 2010.
Regardless of the specific market a Houston hotel might derive most of its business from, there is a strong probability that market is related to the energy sector, Fuller said.
“I’ve had to reforecast a couple of times for (the first quarter),” he said. “It’s down, but just slightly. I want the pump (prices) to stay flat lined, worst case. The best case would be for it to go up a little bit.”
Holding strong on rate
Ian Bush, hotel manager at the Hotel ZaZa, said his property has yet to see a big impact from the decrease in oil prices. He acknowledged that hoteliers in the city are proceeding cautiously.
“We’re staying in touch with our clients,” he said. “There’s been a lot of relationship building these last couple of months.”
The JW Marriott in Houston is holding steady with the rates it has negotiated with clients, said Natalie Wiseman, director of sales and marketing at the hotel. Fuller said the Royal Sonesta is doing the same.
Chris Miller, GM of the Wyndham Houston West Energy Corridor, said none of the hotel’s clients have asked to renegotiate rate, but he has seen a change in how meetings are being conducted at the hotel.
“They’re being a little more frugal in where they will end up and the rate they will pay,” he said. “The size of the meetings is getting smaller. We had two groups this month … that changed drastically from what they initially looked like.”
One positive of the decline in oil prices is it helps prop up transient leisure business, Bush said.
“Our weekends have held pretty strong and look strong as we look to the future as well,” he said. “We certainly want the prices to get higher, but the confidence of the consumer is very high as well.”
Fuller said it is nice to see a pickup from the leisure side, but a decline in corporate group business would be a blow.
“Leisure transient is great, but corporate group, when that starts to fade, there isn’t enough transient to make up for it,” he said.
Overcoming oil price drops
The roundtable participants said they also are staying in closer contact with their respective sales teams in an effort to drum up business to make up for the softening of the energy-related business.
Miller said the medical sector has made a move to the west side of the city where his hotel is located.
“We wanted to get more entrenched with that and not rely so much on oil and gas,” he said.
Bush said he is talking to his sales team about medical sector clients, too. “We have a good presence there, but we’re re-establishing the relationship and making sure it’s as strong as it needs to be,” he said.
Fuller said it’s imperative that hoteliers figure out what they need to do to bring other business through the doors.
“All of the sudden, you’re glad to have airline crews in the house,” he said. “Sixty days ago, I was asking, ‘Can we get rid of them?’”
He added: “We all know an empty bed is a missed opportunity.”
Future outlook
Houston has been a hot development market of late. According to data compiled by STR, the city had 5,603 rooms under construction as of the end of January. The market is second among the top 25 U.S. markets in rooms under construction, behind only New York City's 14,272.
Looking ahead, the hoteliers expressed optimism for Houston.
“There are more citywides on the books in 2016 and 2017,” Fuller said. “It just feels good. I believe oil will increase. Even if it gets above ($80 a barrel), they’re making money. And when (the oil companies are) making money, we’re making money.”
Miller said he senses cautious optimism in the city’s hotel market. He said Houston has an infrastructure in place that will help its economy grow over the long run.
“I believe this is not going to be a long-term phenomenon with oil pricing,” he said. “I believe oil companies will take the opportunity to right-size and possibly merge.”