Houston was one of the strongest hotel market's in the country as the region emerged from the economic recession early in 2010, bolstered by growth in the energy sector and a favorable business environment that led to record job and population growth. Such growth led to increased construction across all real estate sectors. However, oil prices began to decline in late 2014, and Houston entered the worst energy downturn since the 1980s. Lodging fundamentals, although significantly influenced by the decline in energy-related demand, were not as affected as in the prior energy downturn, due in large part to a more diversified economy, most notably the growing health care sector anchored by Texas Medical Center. The price of oil reached its nadir in early 2016, after nearly 18 months of decline. Since then, oil prices have stabilized and the metrics used to track the health of the industry, such as active rig counts, have improved. Nonetheless, the industry remains guarded, as OPEC's recent nine-month extension of production cuts were not enough to push prices higher given strong production levels in shale plays throughout the United States.
After robust growth early in the decade, Houston realized its second year of RevPAR decline in 2016. Submarkets with high exposure to energy-related corporate demand, especially demand related to the upstream oil-and-gas industry, or exploration and production, were hit the hardest. In particular, the Energy Corridor and Houston West submarkets realized RevPAR declines from 10% to 30%. Market-wide occupancy dropped to the low 60s, and average rate was down roughly $2 in 2016. Demand is expected to stabilize in 2017 as some energy-related demand returns to the market. Demand levels were bolstered early in the year by the Super Bowl, held in Downtown Houston in February 2017. Furthermore, the opening of the Marriott Marquis in late 2016 is anticipated to boost meeting and group demand as the hotel ramps up.
Record occupancy and ADR levels experienced through 2014 prompted a substantial increase in supply. Approximately 3,000 hotel rooms opened in the market in 2015, and 5,400 rooms opened in 2016. As of early 2017, another 2,800 rooms were under construction, with planned openings in 2017 and 2018. We note that the Downtown Houston submarket has realized the strongest increase. The greater hotel market will likely notice the effects of this increase in supply over the next three years.
Transaction activity was relatively slow in 2015 and 2016. It is expected to remain low in 2017 due to the continued uncertainty in the energy sector, which remains the city’s major demand generator. Twenty-three hotels have sold since January 2016, including the Sheraton North Houston at George Bush Intercontinental ($68,000,000, or $162,291 per room), the DoubleTree by Hilton Downtown ($52,000,000, or $148,571 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.
* 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.