San Marcos, the county seat of Hays County, Texas, and known for being the home of Texas State University, the San Marcos outlet malls, which rank as the largest in the Southwest U.S., and its historic downtown district, is moving forward with a new $40 million hotel on the Texas State University campus.
This month, the City Council approved a $9.1 million tax incentive package to support the hotel development project. Midway Development, a privately owned real estate investment, development, and construction firm based in Houston, will lead construction and New Waterloo, a hospitality management and development company based in Austin, will manage operations. The hotel will include 130 rooms, a rooftop bar, event space, and an outdoor amphitheater.
The $40 million hotel project is designed to meet the growing demand for hotel space tied to Texas State University's expansion. The university recently passed 40,000 students and is adding new Ph.D. programs. It will join the PAC-12 Conference in 2026, which is expected to bring more visitors for athletics, research and academic events.
“This hotel is a strategic investment in the future of San Marcos,” said Mike Kamerlander, president and CEO of the Hays Caldwell Economic Development Partnership, in an interview. “As Texas State University expands its research and athletic footprint, and as more companies look to the Innovation Corridor, the demand for high-quality accommodations and meeting space is only going to grow. This project positions us to meet that demand head-on."
Hotel performance under pressure
At the same time, hotel performance in the region has been under pressure. Average hotel room occupancy in the San Marcos/Austin Surrounding Area has decreased from an average of 64% to just over 60% in the past year. Room supply has increased by 3.2%, but demand is down by 2.4%.
The likely explanation for the softening hotel performance in the area is increased competition from short-term rentals available through Airbnb, Vrbo and other platforms. According to short-term rental data from AirDNA, new active listings over the last five years are up more than 12% on average year over year.
Additionally, from June 2021 to June 2025, short-term rental supply jumped by 71%, while demand increased 24%. In San Marcos, short-term rentals appeal to visitors attending university events, tubing the San Marcos River, or visiting Hill Country wineries.
In the last five years, seven new hotels have opened in the region, resulting in an additional 490 rooms, which represents a 5% increase in supply. Four of these hotels are branded, while the remaining three are independent.
Kamerlander of the Hays Caldwell Economic Development Partnership noted that adding a four-star hotel to the region could generate new demand, particularly among business travelers and groups associated with conventions and conferences, since such room options were previously unavailable. “By providing more alternatives, we’ll stimulate further growth in the local hospitality industry while catering to diverse traveler segments”, said Kamerlander.
The new hotel to be built near Texas State is intended to serve those needs. Whether it marks a shift in the city’s lodging strategy or stands alone, it reflects how San Marcos is adapting to changes in travel and development as the city grows and the popularity of Texas’ Hill Country grows.