Houston ho­tels to take hit

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

Austin American-Statesman - - BUSINESS - By Hui-yong Yu

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.”

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