Houston hotels to take hit

First responders to fill rooms, but longer-term prospects appear dim.

Houston’s hotel market, already the worst-performing in the nation, is poised to take a further beating from Hurricane Harvey as the natural disaster creates chaos in a city that’s been reeling from low oil prices for the past three years.

Some area hotels are offering discounts to alleviate the temporary housing emergency, and Gov. Greg Abbott temporarily suspended the state and local hotel and motel occupancy tax for relief-effort personnel and storm victims.

The area’s hotels may be filled at first by first responders, Federal Emergency Management Agency workers, insurance adjusters and others dealing with Harvey’s aftermath — and there may be fewer available rooms as some properties suffer damage from the storm. The longer-term impact for lodging, however, is likely to be negative, said Carter Wilson, vice president of consulting and analytics at STR, a data provider for the industry.

“It’s going to be very hard on Houston for the foreseeable future,” Wilson said. Marriott International Inc. and Hilton Worldwide Holdings Inc., the two largest hotel operators globally, said hotels in the affected area have the authority to waive cancellation fees.

The hotel industry in Houston, the fourth-largest city in the U.S. and its energy capital, has struggled because of depressed oil prices. Occupancy and room rates in the city are down for the third consecutive year, according to STR. Revenue per available room, an industry performance gauge, declined 4.6 percent year to date, after falling 12.5 percent last year and 3.4 percent in 2015, the firm said.

Houston’s hotel occupancy in the first seven months of 2017 averaged 62.7 percent, the lowest among the top 25 U.S. markets, according to STR. Houston hotel room rates are the sixth-lowest

among those 25 areas, averaging $107 a night this year, below the $127 U.S. average, STR data show.

Real estate investment trusts that own hotels are likely to be the only REIT segment to benefit from the storm, with displaced residents and aid workers driving an increase in demand from September to December, Michael Carroll, an analyst at RBC Capital Markets LLC, wrote in a note. REITs of other types, including apartment and health-care landlords, should see only modest financial impact from Harvey, according to Carroll.

Dallas hotels could benefit, as could hotels near airports in cities where travelers are stranded by the temporary closing of Houston’s airport, Wilson said. Houston is a gateway city to Central and South America. Hurricane Sandy, which struck the New York area in 2012, caused a spike in some cities due to flights being canceled, Wilson said.

Hotels in Austin, the state capital, and College Station, the home of Texas A&M University, reported extra bookings because of Harvey, with some selling out for tonight. Austin is about 160 miles northwest of Houston, and College Station is 95 miles away.

Based on the impact of Hurricane Katrina, which devastated New Orleans in 2005, “it’s a net negative in terms of revenue impact over the course of the first year,” Wilson said. Katrina took out an estimated 70 percent of the hotel supply in New Orleans, he said. In the following year, hotel revenue in New Orleans was “erratic” month to month, and ended up falling 15 percent for the year, according to STR.

“Every situation’s a little bit different,” he said. “It’s hard to say with Houston how many of these hotels are going to be offline. It’s a much larger geographic area” than New Orleans. “With Katrina, we saw huge increases for hotels as far away as Houston. We’ll see demand pushed to other cities and those cities will see a lift for sure.”