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Austin Hotel Trends: Bookings Up, More Mixed-Use

Austin’s hotel market has been operating at a very high rate the last six to eight years. Austin Convention & Visitors Bureau director of market analysis Christine Cramer told the crowd at Bisnow’s Austin hospitality event that the CBD has had double-digit RevPAR growth for the past five years. Occupancy is very high—in the low 80s through the week and in the 90% range for the weekend, well above the magic number of 65% to control pricing. Her team and local hotel owners have focused on bulking up high-value convention activity, and it’s worked. Medical meetings are up 269%, technology meetings are up 190% and corporate activity is up 167%. The opening of the JW Marriott and the upcoming Fairmont have been a huge push in the right direction; many of those top-dollar conventions wouldn’t come here without a major convention hotel.

White Lodging/JW Marriott Austin VP Scott Blalock says 65% of his bookings are group rooms, whether for a conference, association or wedding. Leisure on the weekends has exceeded expectations, but the group business is driving things. That’s important, he says, especially the association activity. Associations have bylaws that require they meet (they’re “guaranteed to consume,” as Christine puts it), and usually can’t afford to just cancel trips like corporations can. That means association bookings are resistant to fluctuations in the economy and protect hotels against cyclical trends. Christine says Austin’s still primarily a tourist market though—only 37% of city-wide reservations are from group activity.

The future of Austin hospitality is mixed-use, says KOR Group managing director Matt Green, especially when the city is involved in the land sale. The last few blocks he handled were city-owned and went through the city RFP process, which included requirements to build mixed-use. But even when it’s not a necessity, hotels work well with other uses, especially condos. Selling condos above your hotel helps the basis; having hotel services boosts marketing for the condos; and combining uses means you can provide amenities and get economies of scale with services like window washing and valet at lower occupancy costs.

Manchester Financial Group president Doug Manchester agrees the next generation of responsible development is stacked vertical mixed-use, and he predicts we’ll see a lot of those proposals coming up in the CBD. JMI Realty chief investment officer Greg Clay’s not so positive on the trend, though. He says the cost of land and construction drives mixed-use, but those projects are so complicated from design to structural challenges and financing that you don’t want to do it if you don’t have to. He predicts upscale hotels Downtown will lose 2% to 3% RevPAR this year, partially because of an increase in supply. But he thinks the submarket can handle some backward momentum in fundamentals.