United States -  Austin

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The Austin market area remains one of the country's most robust economies, which is anchored by the education, government, and healthcare sectors. The market's economy is further bolstered by the technology industry, as numerous global technology firms have a major presence in the area. The city also benefits from a highly popular mix of tourism attractions, which continue to drive strong visitation throughout the year. Austin took the top spot in the 2019 edition of the U.S. News & World Report's "Best Places to Live in the U.S." list for the third year in a row; this list considers indicators such as unemployment levels, household income, cost of living, education, and healthcare, as well as population changes, when ranking the major metropolitan areas in the country. Not surprisingly, these factors have enabled the Austin MSA to realize a net gain in population of 152 people per day since 2010, making the Austin market one of the fastest-growing large cities in the country.

The city benefits from a myriad of demand generators that provide consistent demand both throughout the week and year. In addition to being home to Apple, Inc.'s second-largest campus in the nation, with roughly 6,000 employees, the technology giant announced plans to build an additional campus that will house 5,000 additional employees. Dell Technology's global headquarters is also located in the Austin MSA, and other well-known players such as Facebook, Google, Amazon, IBM, and National Instruments maintain a significant presence in Austin, primarily near The University of Texas J.J. Pickle Research Campus in Northwest Austin. Furthermore, the University recently opened a medical school and teaching hospital adjacent to the main campus in the city's central core. The city is well known as the home of popular events such as South by Southwest and Austin City Limits, and the multipurpose Circuit of The Americas is an international draw, hosting the Formula 1 and MotoGP championships, first-tier concerts, and other special events throughout the year. The key drivers in all three major demand segments (commercial, group, and leisure) are all strong and poised for continued growth.

Given the overall growth in the city and the MSA over the past several years, hotel supply has been robust. Between 2015 and 2018, ten hotels opened in the Central Business District alone, including the world's largest JW Marriott, with 1,012 guestrooms. As a result of this massive influx of new supply, RevPAR declined slightly in 2017 and 2018 as the additional inventory was absorbed, though it is important to note that RevPAR declined by less than 1.5% over that two-year span. The market will continue to welcome a large influx of new supply through year-end 2020, especially within the commercial neighborhoods. While Austin is anticipated to continue to absorb this new room inventory, RevPAR growth should return to positive territory in 2019, though it should remain below the robust gains achieved prior to the first wave of new supply entering the market in 2015. Despite slowing RevPAR growth, the dearth of available hotel inventory for sale in this market, coupled with a large pool of interested buyers, should keep hotel values elevated in the near term.

Austin is the most coveted (and expensive) real estate market in the state. Transaction activity in Austin was modest in 2017 and 2018, as the high cost to acquire a hotel in the capital city compared to the rest of Texas compelled players to build rather than buy. Nevertheless, the attractive economic outlook for Austin prompted buyers to pay a premium for hotel assets over the past two years, especially in the city's central core. Once the wave of new construction is complete, transactions are anticipated to rise. Austin has continued its streak of economic strength and expansion, led by the education, government, and information technology (IT) sectors, and the lodging industry is one of the strongest in the country. Given the popularity of the city for corporate and resident relocation, substantial development activity, and the city's well-known leisure activities and events, the outlook remains positive.

* 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.

The widespread impact of the coronavirus (COVID-19) has had an unprecedented impact on hotels and hotel values worldwide. Consequently, the latest HVI analysis may no longer reflect the most current measure of lodging industry strength or the hospitality investment market.

In each of our offices across the globe, we are working tirelessly to analyze the impact of recent events and provide timely insights to help you navigate these uncharted waters. Because it is unclear how long the pandemic will last or how long related restrictions will be in place, we are updating our analyses on a weekly basis using the most current data.

Additionally, examination of value trends in prior cycles can provide useful information. Historical patterns, together with an understanding of the market’s current expectations for the eventual recovery of the industry and its performance, can provide insights on the likely trajectory of decline and recovery for hotel values.

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