AUSTIN – (Realty News Report) – Texas’ major hospitality markets remain healthy, with Austin leading the state, according to John M. Keeling, executive vice president of Houston-based Valencia Hotel Group, a prominent luxury hospitality management company.
“Austin’s hospitality market continues to be strong,” Keeling said. “The city’s diversified economy—driven by the tech sector known as Silicon Gulch, its universities, and state government—creates balanced demand: steady corporate business during the week and robust leisure travel on weekends. Every other year the Texas Legislature convenes, adding demand from lobbyists and visitors. I’ve joked for decades that Austin will face a downturn someday, and perhaps one day I’ll be right.”
Valencia already operates the Lone Star Court in the Domain mixed-use development and is exploring a second hotel project downtown. “We don’t believe the market is overbuilt. Many independent boutique hotels are opening, and that’s what travelers increasingly want,” he added.
Speaking at the four-day National Association of Real Estate Editors (NAREE) Annual Real Estate Journalism Conference at the Hyatt Regency Austin, Keeling said Dallas’ hotel market is also strong, while Houston’s hospitality sector is feeling some strain.
“Houston is still recovering from additions of roughly 8,000 rooms over the past several years as the oil industry rebounded,” he said. “However, the energy sector has not restored the same level of employment because it operates more efficiently, and that affects hotel performance.”
Keeling identified rising labor costs as a key challenge across Texas real estate and the hotel industry nationally. “There are more than a million open positions in the hotel industry right now,” he told the more than 100 journalists at the conference. “We lack a coherent immigration policy that would help fill roles like housekeepers and bellmen. A mandated $15-per-hour wage isn’t the core issue; the labor shortage itself is pushing wages and benefits higher as hotels compete for scarce employees.”
He noted that land costs and high property taxes, particularly in Texas, are boosting development expenses. “Texas doesn’t have a state income tax, but property taxes here are among the highest in the nation as a percentage of value,” Keeling said.
On the impact of Airbnb and similar home-sharing platforms, Keeling said effects vary by city and season. “The hotel industry has tried to regulate short-term rentals, but that approach didn’t work with rideshare services like Uber,” he observed. “Airbnb activity spikes during major events—citywide conventions, the Super Bowl, and Austin’s SXSW. It has a strong effect in high-priced markets such as New York, Chicago, San Francisco and Miami, but less influence in cities like Kansas City, Houston and Phoenix.”
Overall, the national hotel industry remains healthy, Keeling said, with encouraging metrics: over a nine-year span, 109 of 110 months showed positive growth in revenue per available room (RevPAR), which is calculated by multiplying a hotel’s average daily rate (ADR) by its occupancy rate. The single exception occurred in Houston a year after Hurricane Harvey.
“In the month after Hurricane Harvey, hotels in and around Houston were full, but by the following year occupancy had normalized and RevPAR experienced a sharp decline that affected national averages,” he explained.
When asked by NAREE moderator Eli Segall of the Las Vegas Review-Journal about the possibility of a recession in the hospitality sector, Keeling acknowledged that some observers say a downturn is overdue.
“Recoveries don’t end from old age; something triggers them,” he said. “Potential causes could include unresolved trade tensions with China or other shocks. Right now, however, our forecast calls for modest U.S. GDP growth, with hotel demand rising about 1.7% in 2020 and hotel construction increasing by roughly 1.9%.”
June 26, 2019 Realty News Report Copyright 2019
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