In August of last year, Hurricane Harvey made landfall in coastal Texas, dropping more than 27 trillion gallons of rain and causing $125 billion in damage. Houston alone received more than 50 inches of rainfall, displacing residents and filling hotels for several months as recovery efforts commenced.
Jeff Binford, director at CBRE Hotels, said Houston's hotel occupancy was inflated from Q4 2017 to Q1 2018 due to the presence of hurricane victims in hotels, but the city's current performance is higher than initial expectations. Today, most if not all hurricane victims have moved on from hotel stays, and occupancy levels year-to-date are still 4 points higher than last year, and revenue per available room for the city is up $4 over last year.
"This is powerful growth for a market like Houston, which was troubled a little before the hurricane with the oil price crash and the number of new developments coming online," Binford said. "Now, not only are oil prices increasing, growth is also coming from petrochemical transactions, acquisition of land, new technology and products and the ongoing expansion of the Port of Houston."
Hustletown Carries On
Mike Waterman, president and CEO of Visit Houston, said the destination never missed a beat. The city managed to retain power at its convention-and-visitors bureau throughout the storm, and while the city lost thousands of homes the majority of its hotels suffered only minimal damage.
"For our hospitality community, 98 to 99 percent of our hotels have reopened or remained open during the hurricane," Waterman said. "We lost two Omni hotels and the Lancaster. The Lancaster just reopened, [one] Omni opened five months ago and the other Omni is preparing to open now, so our hospitality inventory was only marginally impacted."
Binford’s data supports Waterman. CBRE’s outlook paints Houston as a dynamic market with multiple areas marked for development, including the Port of Houston and the Johnson Space Center. CBRE's data shows 40 properties representing 5,257 rooms currently under construction, with a total of 187 hotels representing 20,000 rooms in some stages of planning. One worrying statistic from Binford is an estimated 17 hotel development projects representing 2,169 rooms that have been abandoned as a result of the hurricane.
"From a purely hotel perspective, occupancy increased. But some of these hotels may never [open]," Binford said. “Anecdotally, in all markets we are seeing more projects being abandoned or deferred. In recent years it has become common to see a project deferred for a couple months, and that usually tells me there was an architecture problem to work out. Now we are seeing projects being deferred for a year or more, and in Houston thousands of rooms are being pushed back from 2019 or 2020 and beyond.”
Staying Above Water
The net result is that more rooms in Houston are occupied. The challenge for the city is that in Q4 2017 demand increased 23 percent compared to the same period in 2016, and maintaining that growth this year may prove to be difficult. Binford said throughout the U.S. there is hesitation from major employers to commit to new developments because of international trade tariffs, which may cause a reduction in hotel openings in the near future.
For what it’s worth, Waterman said his organization is up to the challenge.
“We don’t see any significant hurdles for Houston on the horizon,” he said. “From March to September 2018 we were up 24.5 percent in roomnights over last year. We had a decline for a week or two during the storm, but thanks to our work with displaced residents and because we were able to retain all 11 conventions we had planned for the city post-Super Bowl 2017, that was a huge win for us. As we rolled into 2018 we were up in our books, and we haven’t seen a slowdown at all.”
CBRE is forecasting annual RevPAR increases in Houston of 4 percent through 2022, something Waterman said is increasing developer confidence in the region. He also said the city has done a good job spreading out developments and diversifying Houston though its medical center, Rice University and its theater district. Last but not least, Houston is also riding high off its 2017 World Series victory.
"That was a big driver for us, to show the country and the world that Houston is back in business," Waterman said. "Harvey was amazingly impactful for Houston, but in the end it helped our brand. It showed we were strangers helping strangers, neighbors helping neighbors. People came here and saw who we really are."