HOUSTON—Like many areas in the hurricane zone in the fall of 2017, Houston’s hotel market was greatly affected by Mother Nature.
Due to Hurricane Harvey, in 2017, Houston hotels finished the year with a RevPAR gain of 10.4%, according to CBRE Hotels’ Americas Research. This was the result of an increase in occupancy of 7% and a 3.1% gain in ADR. The 10.4% boost in Houston RevPAR was better than the national average of 3%.
“Hurricane Harvey accounted for much of the nation’s increases in occupancy, ADR and RevPAR,” said Jeff Binford, director, South Central Region practice leader with CBRE Hotels. “Immediately after the hurricane, CBRE Hotels estimated approximately two million additional rooms would be occupied from the time of the storm through February of this year. These additional rooms were occupied by victims, governmental agencies at many levels, insurance adjusters and contractors. Our studies from the first quarter of 2018 in the Houston-area show much of the hurricane-related business has checked out, and the few remaining guests are leaving hotels as their homes are repaired.”
Before the hurricane hit, lower oil prices meant hotel demand in the area had been declining in 2015 and 2016. “To make matters worse, many hotels were either under construction or committed to be built, further reducing occupancies,” he said. “Although the demand for hotel rooms was boosted by the Super Bowl in the first quarter of 2017, the last half of the year was already expected to show increases in occupied rooms. Prior to Hurricane Harvey, CBRE Hotels estimated a turnaround occurring in the last quarter of 2017, with a 22.7% increase from the same quarter last year. The actual increase in occupied rooms was 33.1% for the fourth quarter of 2017, the difference being mostly the result of Hurricane Harvey.”
While Hurricane Harvey boosted numbers last year, this will make 2018 numbers look worse relatively speaking. “This year’s challenge for Houston hoteliers will be achieving occupancies, ADRs and RevPAR, which were temporarily inflated last year due to the hurricane,” said Binford. “The first quarter of 2018 should be strong due to remaining hurricane-related guests. But replicating occupancies in the last quarter of the year is not likely. Due to the high demand for hotel rooms after the hurricane, average rates were also temporarily increased. Now that hurricane-related demand has subsided, rates followed. Combined, the outlook for 2018 is expected to decline 3.5% in occupancy—only compared to last year—with ADR declining 1.1%. Combined, the RevPAR decline is estimated at 4.5%.”
Binford said that the supply and demand for new rooms will be in tandem for the next five years. “As such, occupancies should remain relatively stable in the mid-60s range. Average rates are expected to experience mostly inflationary increases, resulting in modest RevPAR increases ranging from 1.3% to 4.1%. It is important to note occupancy is expected to remain above Houston’s long run average of 62.6% for the foreseeable future,” he said.
According to Lodging Econometrics, Houston has 146 hotel projects in the construction pipeline, representing 15,714 potential rooms. If they all open, it will add to the 747 operating hotels with 83,768 rooms in the region.
The company reported that 27 hotels opened in 2017, with 31 forecasted to open this year. One of those new properties is The Post Oak Hotel At Uptown Houston.
“The Post Oak Hotel offers a luxury experience like no other in Houston,” said Tilman J. Fertitta, developer of the hotel. “On track to be the state’s only Forbes 5-Star-rated hotel, the 38-story tower exceeds all expectations for the most discerning global traveler with 250 guestrooms and suites, lavish amenities, gasp-inducing design, museum-worthy art collection, sophisticated technology, designer fashion and world-renowned restaurants including the state’s first Mastro’s Steakhouse. This kind of luxury hotel was a real need and will certainly change the landscape of this city.”
Fertitta knows a thing or two about the market, as the chairman, CEO and sole owner of the Houston Rockets, Landry’s Inc., and Golden Nugget Casinos. His company also owns The Westin Houston Downtown and in nearby Galveston, The San Luis Resort, Holiday Inn Resort Galveston–On The Beach, Hilton Galveston Island Resort and The Boardwalk Inn.
“Houston provides one of the youngest, fastest growing, most talented and diverse populations anywhere in the world,” he said. “As the fourth largest economy in the U.S., Houston continues to attract people from across the globe. Houston is also home to the largest medical complex in the world and NASA’s Johnson Space Center; as the ‘Energy Capital of the Future,’ Houston is growing its presence in both traditional and renewable forms of energy technology. This city is ever-expanding in arts and culture and building a powerhouse culinary scene. Houston is flourishing and becoming a prime target for tourism and corporate conventions and business meetings.”
The Post Oak Hotel is part of a 10-acre, mixed-use development including a two-level Rolls-Royce dealership inside the 38-story tower, a lobby with art by artist Frank Stella, and a 16,000-sq.-ft. Grand Ballroom with a private entrance.
“Houston has never had a property like this and I wanted to be the one to deliver it,” said Fertitta. “The Post Oak will stand up to the world’s best hotels. Guests will see the attention to detail we put into every touchpoint and the level of luxury they will not find anywhere else in Houston. It will certainly be a game changer.”
Another luxury entry into the Houston market is Hotel Alessandra. The 20-story, 223-room building occupies a former restaurant pad in downtown Houston’s pedestrian-oriented GreenStreet development.
“There are a very large number of hotels under development in Houston, but the vast majority of those are select-service properties,” said John M. Keeling, EVP of the Valencia Group, developer of the hotel. “Houston actually has a shortage of luxury hotels. There are only four in the city today: the Four Seasons, St. Regis, Granduca and The Post Oak. Hotel Alessandra addresses the paucity of luxury hotels in downtown Houston with an elegant and unique entry.”
The flagship for a new luxury brand, the boutique hotel reunites Houston-based Midway, the operator, with Valencia Group, who are both responsible for Houston’s Hotel Sorella CityCentre.
Designed by the San Francisco office of Gensler, the hotel includes interiors by Rottet Studio, whose recent work includes Valencia Group’s Hotel Valencia Riverwalk renovation in San Antonio and its recently debuted Cavalry Court hotel in Midway’s Century Square College Station, TX development. This is the first ground-up Houston hotel commission for the firm, which is headquartered a few blocks from the property.
According to Doyle A. Graham Jr., the founder, president and CEO of Valencia Group, “Downtown Houston has truly metamorphosed over the past several years—and continues to evolve as the centerpiece of a city with remarkable business resilience and increasing appeal as a convention and leisure market. We’re honored to have the opportunity to create a lasting landmark in the center of it all in longtime partner Midway’s GreenStreet development and strived to forge a path with the Alessandra brand and hotel that doesn’t follow in our own footsteps or those of our competitive set. The look and feel of the localized flagship merges a global perspective with an innate understanding of Houston.” HB