United States -  Austin

Overview:

The city enjoys a diversified economy that is realizing thriving growth in the high-technology sector, further anchored by the largest university in the nation and a myriad of federal, state, and local governmental agencies. As such, job growth in the Austin-Round Rock MSA is among the best in the nation, especially within professional-level positions. Additionally, Austin’s leisure attractions and its position as a host city to international festivals and global sports events enable the hotel market to benefit from consistent demand both throughout the week and throughout the year. The Austin hotel market achieved annual RevPAR growth of roughly 10.5% from 2011 through 2013, with market-wide occupancy surpassing 70% for the city in 2013, and average rate falling just shy of the $120 mark that year. Prior to 2013, occupancy in Austin had surpassed the 70% level only once since 1997. Occupancy continued to climb in 2014 and 2015 as demand outpaced the significant influx of new room inventory. The market’s average daily rate for 2015 represents the historical high for the city. Austin shows no signs of slowing down in 2016, as the economy of the Texas capital has been at or near the top of the nation’s healthiest markets over the course of the past several years.

Today, the best one-word answer to describe the Austin area would be growth. Among the city’s nicknames is “Silicon Hills,” and this homage to the nation’s high-technology capital is one indicator of the emergence of Austin as a primary hub for this industry. Residential growth is prevalent throughout the eleventh-most-populous city in America, with the U.S. Census Bureau estimating the net gain of residents to Austin to be over 100 each day. No less than 15 construction cranes are being utilized in the Central Business District (CBD); construction projects include office towers, residential towers, and hotels. Aside from these typical development projects, The University of Texas broke ground for the university’s new medical school and hospital in April of 2014; the Dell Medical School is expected to welcome its first student class in the fall of 2016. In addition to multiple boutique hotel developments, numerous hotels are under construction, and five hotels have opened in the CBD since February 2015, including the 1,012-room JW Marriott, a 366-room Westin, a 322-room Kimpton, and a 300-room Hotel Indigo/Holiday Inn Express dual-branded property. Notable projects under construction include the 1,066-room Fairmont, a 400-room Aloft/Element dual-branded property, and a 192-unit Hyatt House. The CBD’s room inventory will almost double by 2018. The JW Marriott and the Fairmont are expected to bolster the city’s ability to book larger conventions, as the current downtown hotel supply is unable to meet the sizable demand among meeting and convention planners to utilize Austin as a host city.

Transaction activity has been strong in the Austin area, with buyers competing heavily for the limited number of assets for sale, and sellers seeking to monetize their investment gains. Although sale prices have averaged just over $200,000 per room since 2012, pricing is highly dependent on historical operations, location, product type, and if the property was under financial distress. Over 30 sales, totaling more than $1 billion in transaction volume since 2012, include such high-profile assets as the Omni Barton Creek Resort & Spa, whose estimated price of $200 million was the highest paid in the Austin MSA; the Four Seasons, which held the highest total price paid for a non-resort property; and the Driskill Hotel, which had the highest price per key among non-resort properties at $450,000. Interest among investors remains high and continues to put downward pressure on capitalization rates, particularly in high barrier-to-entry submarkets such as the CBD and The Domain/Arboretum. Barring any unforeseen circumstances in the high-tech sector, the outlook for the Austin area is positive, and values should continue to rise through 2018.

* The HVI is an index, a statistical concept reflecting a measure of the difference in the magnitude of a group of related variables compared with a base period. As such, it is a measure of broad market trends, rather than a conclusion as to the specific value of any asset, and cannot be applied to an individual asset. A good comparison is the Consumer Price Index. While this index provides a reliable measure of the overall rate of inflation in a region, it does not indicate how the price of milk has changed at your grocery store. So how can the HVI be of use to an individual investor? Although the HVI cannot tell you what a particular hotel is worth, it does provide excellent big picture data, indicating which market areas are experiencing positive trends, and thus may present good investment opportunities. The HVI for the U.S. is a measure of the strength of the lodging industry as a whole and, specifically, the hospitality investment market. The HVI for the various identified markets can provide a basis to evaluate and compare different geographic regions. For more insight on the limitations and applicability of the HVI, please read the message on the HVI home page by clicking on the graphic at the top of this page.

Valuation Trends and Predictions:

Austin United States
Previous Year +1% (48 of 71) +1% (49 of 71)
Growth in 2017 +2% (37 of 71) +2% (36 of 71)
Growth in next 4 years +11% (35 of 71) +12% (32 of 71)

Change In Value For Market:

Austin RevPar % Change

For more information, please contact:

Shannon Sampson
ssampson@hvs.com
  • +1 512 626-9172 (w)