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Austin is the Best Hotel Market in Texas, a Strong State for Hospitality

Downtown Austin. Photo: Ralph Bivins, Realty News Report

AUSTIN – (Realty News Report) – The major hospitality markets in Texas are all solid, with Austin leading the state, reports John M. Keeling, executive vice president of Houston-based Valencia Hotel Group, a leading luxury hospitality management company.

“Austin’s hospitality market continues to be strong,” said Keeling. “The city has a diverse economy with high-tech Silicon Gulch, the universities, and state government. It has balanced demand – strong corporate demand during the  week and heavy leisure demand on the weekends. And every other year, the Texas legislature meets generating increased demand from lobbyists and others.  I’ve been predicting Austin will have a downturn for 30 years and someday I will be right!

Valencia already has a property in Austin, the Lone Star Court in the Domain mixed-use project, and is pursuing the development of another hotel downtown.  “We don’t think the market is overbuilt. A lot of independent boutique hotels are being built and  that’s what people want.”

Speaking at the four-day National Association of Real Estate Editor’s (NAREE) Annual Real Estate Journalism Conference at the Hyatt Regency Austin, Keeling said the Dallas hotel market is also robust but Houston’s hotel sector is experiencing some economic growing pains.

“Houston is still lagging because it has added  8,000 rooms in the last several years as the oil industry recovered,” he continued.  “But the energy industry has not replaced many jobs as it has become more efficient, so that is affecting the hospitality market.”

Among the challenges facing the Texas real estate sector as well as the hotel industry in general is rising labor costs.  “There are more than 1 million vacancies in the hotel industry right now” he told the more than 100 journalists attending the conference.  “We don’t have a rational immigration policy. There is a need for a lot of people to work as housekeepers and  bellmen and other positions.  We don’t need a law mandating a $15-per hour wage; the labor shortage is creating upward pressure on wages and benefits as hoteliers outbid each other for scarce employees .”

Land prices are also driving up the cost of building new hotels and so are high property taxes, especially in Texas, Keeling said.  “We don’t have a state income tax, but Texas has among the highest real estate taxes in country as a percent of value,” he added.

Queried about the effect Airbnb, the online marketplace and hospitality service brokerage company based in San Francisco, is having on the U.S. hospitality market, Keeling said it depends on the city as well as the time of year.  “The hotel industry is trying to put some reins on the shared housing industry, but that didn’t work with Uber,” he noted.  “Typically, Airbnb is most active when there is a large event in a city like a city-wide convention or Super Bowl and SXSW in Austin. Airbnb is having a large impact on high priced markets such as New York, Chicago, San Francisco and Miami but less of an impact in a Kansas City, Houston or Phoenix.”

The national hotel industry is doing quite well, he continued; the basic metrics are encouraging with 109 out of 110 months with positive increases in revenue per available room (RevPAR — calculated by multiplying a hotel’s average daily room rate (ADR) by its occupancy rate). The one month this didn’t happen was a year after Hurricane Harvey in Houston.

“The month after Hurricane Harvey, all the hotels in and around Houston were full, but a year later, all the hotels had returned to normal and there was a huge drop in RevPAR which affected national averages,” he said.

Asked by NAREE moderator Eli Segall of the Las Vegas Review-Journal about a possible recession in the hospitality sector, Keeling noted that some people say, ‘we are due for a recession.’

“But recoveries don’t die of old age,” he explained.  “Something causes it.  What could it be?  No agreement with China?  Anything is a possibility, but right now we predict modest growth in the U. S, GDP with hotel demand growing at about 1.7%  in 2020 and construction increasing at about 1.9%.”

June 26, 2019 Realty News Report Copyright 2019

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