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Houston Poised To Benefit From Decreasing New Hotel Supply, Increasing Travel Demand

A slowdown in hotel projects across the U.S. amid a tough financing environment might not sound like good news.

But coupled with increasing demand for rooms, the pause has the potential to benefit Houston’s hotel industry, which has been oversupplied since market performance peaked almost a decade ago.


Considering impacts from oil market crashes, Hurricane Harvey and the coronavirus pandemic, Houston’s hotel market has had a rough go of it for about 10 years, said Michael Yu, executive vice president for CBRE’s Houston hotel brokerage and investment sales group. 

This year, Trepp ranked the Houston metropolitan area as the lowest-performing lodging market nationally due to low occupancy and high delinquency rates. The March report said that since the metro had several project delays due to the pandemic, a spike in new deliveries could further dampen occupancy in Houston.

But last month, a Reuters report found that more stringent lending standards making it harder to secure funding have helped halt well over half of all U.S. hotel projects that broke ground or were in the pre-construction phase this year. 

“Houston is an oversupplied market, so I think, actually, it’s good news,” Yu said, adding that getting equity partners and interest rates surpassing 11% have been issues in the Houston market as well.

Meanwhile, hotel developers talking to contractors are in for some sticker shock, said Alif Maredia, president of Houston-based PA Hospitality.

“Unless you're in a really strong market, no one is really going to be moving forward,” he said. “You just can't pencil in the numbers.” 

It’s a stark contrast to 2014 through 2019, when “everybody wanted to build a hotel,” Maredia said. 

A rendering of PA Hospitality's Hilton Home2 Suites/Tru Hotel dual-branded hotel slated to open in Q4 2024. The 221-room hotel is under construction at 1514 Leeland St. in Houston.

“Even though Houston saw a decline in revenue and RevPAR starting in 2016 or 2015 … it was too late for the supply to stop because they were too far in the process,” Maredia said. “I think now we’re getting to a cycle where it’s going to really slow down.”

Houston First Corp., the city’s official destination marketing organization, found that the Houston market has added about 2,700 hotel rooms since the beginning of 2021. Just 200 of those were added in 2022, and another 437 were added so far this year.

The Houston market totals 849 properties with about 106,000 rooms, Houston First Chief Marketing Officer Holly Clapham-Rosenow said.

So far, the construction slowdown and an increase in bookings are working to Houston's advantage.

Houston’s revenue per available room was higher than before the pandemic in the first quarter, according to a report from Source Strategies. Q1 RevPAR was $69.24, 5% higher than Q1 2019, the report said.

Occupancy rates have almost fully recovered as well. The rate in the first quarter was only 2.9% below the Q1 2019 figure, but it was 10.4% better than Q1 2022, according to the report.

The Texas energy sector and stable crude prices have buoyed the lodging market, according to Source Strategies. Houston First expects trends to remain positive for the rest of the year, with 29 major conventions booked, including one each week in July. 

Houston’s hotel market benefits from business and convention travel, as well as a constant influx of friends and family visiting, Clapham-Rosenow said. 

“It’s the fourth-largest city in the United States,” she said. “We are a very diverse community that is centralized around friends and family. So you have that constant connectivity. We also have very strong business.”

Business travel to the Houston market was up 17% this year through the first week of July compared with the same period in 2022, according to data Houston First provided to Bisnow.  

Business travel this year represents about 38% of travelers, with group business representing about 26%. In 2022, business travel accounted for about 40%, but group business was only 22%, meaning group business is gaining in its share of travelers.

Things like $2B in funding to improve George R. Brown Convention Center will also be good for Houston’s lodging industry, especially in key markets like downtown, Maredia said.  

Despite every Houston submarket being oversupplied, PA Hospitality has a hotel under construction downtown, he said. It was originally planned to break ground in March 2020, but that was delayed until April this year. 

“As long as there's a good future, I think you can still pencil in deals and make them work,” he said. 

Houston First reports that about 4,600 rooms are under construction or planned within the next four years. While there will still be a few hotels coming online, it won’t be anything like the past decade, Maredia said. 

The slowdown is needed, he added.

“It was just a really bad storm that we had to come out of,” Maredia said. “I think Houston has a bright future. Obviously, the supply slowdown is going to help. Hotels will have a fair shot of being successful.”