Similar to other U.S. cities, Houston�s hospitality industry was immediately impacted by the events of September 11, with convention cancellations and an overall decline in leisure and business travel. By the first week of October, however, the market had rebounded to levels slightly below those experienced before the attacks. Lower energy prices and the collapse of energy-trader Enron are also adversely impacting Houston�s economy. The diverse nature of the local economy, however, coupled with an increase in energy prices should bode well for the city's recovery in 2002 and 2003. In addition, with a large base of �old-economy� industries, the technology sector fallout has not affected Houston as severely as other cities in Texas such as Dallas and Austin.

Major Demand Changes

Investments in infrastructure, hotel and convention space are transforming Houston into an attractive meeting and convention destination. The 2004 Super Bowl and the city�s bid to host the 2012 Olympic Games are anticipated to boost its image and economy. In order to capture convention and leisure business currently lost to more high-profile destinations, Houston is making substantial financial contributions to upgrade several areas of the city, including a $2 billion investment to revitalize the downtown district.  A number of new developments and major events are anticipated to increase visitation to Houston the near to mid-term. These include:

• Two new performance halls at the Hobby Center for the Performing Arts, anticipated to open in May 2002 and attract more than 500,000 visitors to the downtown area annually;
• The expansion of the George R. Brown Convention Center, which includes the addition of three exhibit halls and 60 meeting rooms, anticipated to be completed by Fall 2003;
• The Houston Rockets downtown arena, a multi-purpose facility that will accommodate an estimated 18,500 fans for basketball, 17,800 for hockey, and 19,300 concert-goers, anticipated to open in September 2003;
• The expansion of Bayou Place, a popular downtown venue with a mix of restaurants and theaters, scheduled to open early 2003;
• The 2004 Super Bowl is anticipated to attract between 80,000 to 90,000 visitors estimated to spend approximately $60 million on hotel accommodations; and
• Beginning in 2006, the Instrumentation, Systems and Automation Society�s trade show is anticipated to attract over 35,000 attendees every two years to the downtown area.

As of October 2001, Houston�s hotel room inventory consisted of more than 43,000 hotel rooms. A total of 24 hotels were added to the city�s lodging supply during 2001, including the recently opened 312-room boutique Derek Hotel and the 171-room Hilton Garden Inn. While a number of additional projects are anticipated to open in the near future, the recent economic slowdown may postpone the opening of many new hotels to the end of 2003, in time to accommodate anticipated lodging demand created by the 2004 Super Bowl. Proposed developments include:

• Conversion of the 476-room Crowne Plaza hotel to a 485- room Inter-Continental Houston, scheduled to open in the spring of 2002;
• The 314-room Magnolia Hotel in downtown Houston, anticipated to open in the fall of 2002;
• The 300-room Marriott in Sugar Land, scheduled to open in the summer of 2003; and
• The 1,200-room Hilton Americas Convention Center Hotel, with 70,000 square feet of meeting and banquet space, scheduled to open by the end of 2003.

Houston�s efforts to become the site for the 2012 Olympics are already paying off, as it has made the short list of potential U.S. cities to host the Games. High hospitality taxes continue to present a major obstacle for new convention business and hotel developments in Houston.  The city�s 17 percent local hospitality tax, which was increased in 1997 to help subsidize the construction of the Enron Field baseball stadium and the renovation of the Astrodome, remains one of the highest in the U.S., compared to the national average of 12.36 percent. The Hewlett-Packard and Compaq merger could also affect Houston�s economy in 2002; if the merger takes place, layoffs and job relocations are possible, as the new company is to be headquartered in California, decreasing Houston�s commercial lodging demand.

Chuck Bedsole, Dallas 

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