Texas Shines As Lone Star In Murky National Hospitality Market
The national hotel market doesn’t paint a very pretty picture right now, but Texas metros like Dallas-Fort Worth stand out as bright spots for developers and investors.
Hotel revenues haven’t increased as much as inflation over the past six years, while construction costs have gone through the roof. Plus, rising interest rates and political turmoil killed any momentum the industry had coming out of the pandemic, Woodbine Development Corp. Managing Partner and Chief Investment Officer T. Dupree Scovell said.
“We're six years deep into not a very great hotel environment,” Scovell said during Bisnow's DFW Hospitality Update on Thursday at the National Medal of Honor Museum in Arlington.
“In my view, there's not a lot to be excited about, except for Texas.”
DFW’s continued population growth, business-friendly environment and influx of corporate relocations have juiced the need for new hotels in the metro.
DFW's construction pipeline led the nation at the end of the third quarter, according to the U.S. Hotel Construction Pipeline Trend Report from Lodging Econometrics.
The DFW market has just under 200 projects on the way that will bring more than 24,000 new rooms to the metro. The next closest market was Atlanta, with 160 projects that will deliver more than 18,000 rooms.
"People are afraid of new supply," Braemar Hotels & Resorts President and CEO Richard Stockton said. "But you have to look at demand, too."
He compared the onslaught of deliveries planned in DFW to the growth of supply experienced by Austin and Nashville over the past decade. In addition to leading the nation in new supply, Stockton said they were also leaders in revenue per available room.
“I'm optimistic about Dallas," he said. "As long as you have that continued migration, that's going to be able to meet the supply that's coming."
The latest population estimates published by the North Central Texas Council of Governments show that DFW added more than 234,000 residents over the past year and is on pace to overtake Chicago as the nation’s third-largest metro in the next decade.
As that kind of growth isn’t happening in other parts of the country, TCOR Hotel Partners President and CEO Thomas Corcoran said most room rates are below those in 2019. Within Braemar’s portfolio of luxury hotels, he said locations are generating a 30% net operating income margin, while other properties in the same market are losing money.
And the predictions for 2026 aren’t any better, he said.
"So as owners, we're making less money today on a per-hotel basis than we did in 2019,” Corcoran said. “We've got a rough road ahead."
The bright spot is luxury hotels. That is the only segment in the entire industry that has positive revenue per available room, he said.
The more than 29,000 luxury hotel rooms in DFW had a 12-month RevPAR of $132.66, commercial real estate firm Matthews wrote in its third-quarter hospitality market report. That's nearly 70% more than the region's 42,000 midscale rooms and over 225% higher than the almost 31,000 economy rooms.
DFW has fewer high-end hospitality offerings than a region its size needs, Marcus & Millichap Executive Managing Director of Investments Chris Gomes said this summer.
However, that could soon change as more than 60% of DFW's hotel development is concentrated in luxury and upscale projects across Frisco, Las Colinas and Uptown Dallas, according to the Matthews report.
The other prominent avenue for hotel construction in DFW is through mixed-use projects, PKF Hospitality Managing Director Channing Henry said. Many of her clients won't look at a hotel project unless it's part of a mixed-use development or has another added element, such as branded residential.
"It's a way in on some exciting other form of real revenue generation," Henry said.
Nearly all the projects Merriman Anderson Architects principal Jennifer Picquet-Reyes sees move forward at her firm are part of mixed-use developments. Two of their most recently completed projects were hotels within the Hall Park mixed-use development in Frisco and the EpicCentral entertainment district in Grand Prairie, she said.
"A lot of it is associated with office, surprisingly, or larger master-planned communities," Picquet-Reyes said.
That combination with office is due to the upcoming Texas Stock Exchange and the growth of Y'all Street. That has turned the metro into a hot spot for the financial services sector.
The region has received major commitments from companies such as Goldman Sachs, Wells Fargo, Scotiabank and PennyMac Financial Services that have provided positive momentum for DFW’s office market this year.
