Sept. 30–The slowdown in the oil patch is taking a toll on the local hotel industry, which has seen the parties, conventions and business travel slow even as new properties open to the public.
Weakening demand and rapidly growing supply have created a double whammy that's left Houston hoteliers with drops in rates and occupancies and facing more declines, said hotel analyst Randy McCaslin of CBRE Hotels, who conducted an annual report on the state of the local hotel industry.
"This boom was a better boom than most booms," McCaslin told the Hotel & Lodging Association of Greater Houston Thursday. "But the bust was worse than most busts."
By the end of next year, Houston will have added more than 11,000 rooms since 2015. In 2017 alone, Houston will add 5,100 hotel rooms. Yet McCaslin forecasts double-digit drops in occupancy rates across several markets. The hardest hit areas will be Katy/Westchase, The Woodlands, the northwest, downtown and the Galleria.
A 10 percent slide in Baytown's hotel occupancy rates is seen as a sign that the petrochemical construction boom is slowing.
Occupancy rates in Houston are expected to fall from an average of 72 percent at the peak in 2014 to 62 percent next year. Occupancy rates fell 7.6 percentage points during the second quarter compared with the same period last year.
"These numbers illustrate the importance of the oil industry in Houston," McCaslin said. "We are working on diversifying, but oil is just still very important."
There are positive signs for Houston. The arrival of Super Bowl LI next February will mitigate some of the pain for 2017.
"The numbers would be worse without the Super Bowl," McCaslin said. "It really will have an impact to help us get out of the hole we're in."
Also helping, McCaslin said, are expansions at the Port of Houston, the arrival of new companies like Daikin Industries, continued growth at the Texas Medical Center and an expected uptick in convention activity once the 1,000-room Marriott Marquis opens. He expects a recovery in 2018.
In the meantime, though, Houston is facing some "ugly numbers" this year and next, he said. Houston's 5.5 percent unemployment rate now is among the highest in the nation.
High-end hotels have fared better than those offering lower prices. Occupancy for upper-priced hotels dropped a little more than 5 percent in the second quarter, while the lower-priced hotels slid 9 percent. McCaslin said Houston needs more luxury hotels despite the current oversupply. Several are planned in the Galleria area and downtown. There is also a luxury hotel under construction in the Texas Medical Center area.
Nick Massad Jr., president and CEO of Houston-based American Liberty Hospitality, said he has seen modest drops in occupancies and a minimal impact on rates.
"It hasn't been anywhere near as bad as previous cycles we've experienced," Massad said. "Some areas are affected more than others with oil being down, but we are rebuilding convention business and working to become a powerhouse for tourism."
Massad, who also chairs the Greater Houston Convention and Visitors Bureau, said tourism officials have been working to book more conventions and that downtown needed more hotels to attract business.
He also said the Super Bowl will do long-term good for the city.
"It's about spotlighting our city. It's not just about two weeks of business," he said. "Eyes from all over the world will be focusing on Houston."
