United States -  Houston

Overview:

Houston’s impressive economic growth has been supported by a historically strong energy sector and a favorable business environment; this has led to record job and population growth, with over 100,000 new residents annually. Such growth led to increased construction across all real estate sectors. However, the decline in oil prices, which began in 2014, started to affect the market in 2015. Officials at the Greater Houston Economic Partnership noted that area employment grew by 23,500 jobs in 2015, despite the weaker energy sector. Nevertheless, the numbers fall short of the market’s historical pace of roughly 100,000 annual jobs in the post-recession years of 2011–2014.

Houston realized its first year of negative RevPAR growth in 2015 since recovering from the Great Recession. While market-wide occupancy dropped to the high 60s, average rate strengthened to an all-time high of $108. Record occupancy and average rate levels experienced through 2014 prompted an increase in supply; approximately 3,300 hotel rooms opened in the market in 2015. As of early 2016, another 5,300 rooms were under construction, with planned openings in 2016 and 2017. In particular, the Downtown Houston submarket is anticipated to realize an increase of roughly 1,700 rooms in 2016. The hotel market will likely notice the effects of this increase in supply over the next three years. It is important to note that the city experienced a similar increase in supply in 2009 and 2010, and although the market suffered along with the rest of the nation because of the recession, the increase in supply was fully absorbed by 2012. We anticipate the value of Houston hotels to remain stable for the next three years, as the market absorbs new supply.

Transaction activity was relatively slow in 2015 and is expected to remain muted in 2016 due to the uncertainty in the energy sector, which remains the city’s major demand generator. Nevertheless, oil prices are believed to have reached bottom in early 2016, having increased by nearly 30% since that time, potentially signaling the start of a recovery. Twenty-three hotels have sold since January 2015, including the Sheraton North Houston at George Bush Intercontinental ($68,000,000 or $161,905 per room), the Hilton Houston Westchase ($65,100,000 or $219,192 per room), and the DoubleTree by Hilton Houston Intercontinental Airport ($58,500,000 or $186,901 per room). The city's top submarkets for investors remain the Galleria and Downtown.

* 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:

Houston United States
Previous Year +2% (28 of 71) +1% (49 of 71)
Growth in 2017 +3% (13 of 71) +2% (36 of 71)
Growth in next 3 years +15% (9 of 71) +10% (36 of 71)

Change In Value For Market:

Houston RevPAR % Change

For more information, please contact:

J. Carter Allen, MAI
callen@hvs.com
  • +1 713 252-5995 (w)