Aug. 17, 2007 - Now is a great time to be a Houston hotel owner, one expert says. The hotel market is performing at peak levels, and it is unlikely any competitor will open a new place near you anytime soon.

That was the message from PKF's John Keeling, who shared highlights Thursday from his company's 2007 Texas Trends Hotel Industry Report.

This year looks good, and 2008 looks better, said Keeling, senior vice president of PKF, a hotel and restaurant consulting firm. He added that 2009 and 2010 could also be strong.

But rising land and construction costs and a recent tightening in the lending market are causing a slowdown in hotel construction, he said.

"Good deals will still get done, but this is no time for amateurs," Keeling said.

One part of town that will definitely see significant hotel construction in 2008 is along the Katy Freeway, from the Energy Corridor to Katy, he said.

"In general, I think the hotel market looks very good," said Joan Johnson, president of the Hotel & Lodging Association of Greater Houston, which sponsored Keeling's talk at the Wyndham Greenspoint.

The strength of the market is being driven in large part by Houston's healthy corporate business climate, Johnson said.

Occupancy rates in the Houston area are expected to rise from 67.5 percent in 2006 to 69 percent in 2007 and 70 percent in 2008, according to the PKF report.

Average daily rates in the Houston area are projected to rise from $96.62 in 2006 to $101.50 this year and $105.50 in 2008.

Statewide, the hotel industry is also enjoying solid business, Keeling said.

In 2007, Dallas will have the highest average daily rate in Texas at $119, according to PKF.

However, San Antonio is the best performer among Texas cities when factoring in both occupancy rates and the price of rooms, Keeling said. Austin has the highest occupancy rate, 74 percent.

Austin will see an explosion of new hotels beginning in 2010, but its economy is strong enough to support the growth, while Dallas may be overbuilding, Keeling said.

The Galveston area has seen an exceptionally large increase in room rates, from $84.56 in 2002 to $132 in 2007, he said.

In Houston, the number of rooms in the Texas Medical Center shrunk after the closing of the Crowne Plaza, and Keeling considers that area to be "under-hoteled."

Downtown Houston also needs more hotel rooms, he said. Ideally, downtown should get a new 1,200-room hotel, because convention planners prefer placing their participants in as few hotels as possible, Keeling said. And a strong convention business boosts the entire local hotel industry and other aspects of the economy, he said.

This year has been an off-year for convention business in Houston, but next year will be much stronger, Keeling said.

Compared with Houston's 4,751 downtown hotel rooms, San Antonio has 11,900 and will have 13,325 next year, Keeling said. Dallas has 6,600 downtown rooms, even though it has far fewer corporate headquarters in its downtown district compared with Houston's downtown, he said.

Paul Nash, general manager of Houston's St. Regis, near the Galleria, said his hotel's solid performance is directly related to Houston's strong economy.

Summer is the toughest time for a Houston hotel, Nash said.

This year, he said, June and July at the St. Regis were stronger-performing months compared with June and July of 2006.

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