HOUSTON—Damage from Harvey to 200,000 homes across the region as well as infrastructure and commercial properties will create significant short-term hurdles, but Houston is uniquely positioned for recovery, according to a recent report from Marcus & Millichap. Apartment demand is likely to surge and the significant multifamily construction of recent years will be quickly absorbed. The recovery process will bolster the Houston employment market, creating a short-term surge in hiring and economic growth, GlobeSt.com learns.
This year is expected to end on a high note for hotels. Some of the damage has a silver lining in terms of displaced residents seeking shelter in Texas hotels. These hotels will support short-term housing needs, with occupancies rising significantly as displaced households fill rooms.
Nearly all the major state metros, with the exception of San Antonio, registered a decrease in occupancy, average daily rate and RevPAR during the last 12 months. The San Antonio metro posted healthy improvements among hotel demand drivers as rising room nights and limited completions fueled an increase in occupancy. As hotels filled rooms, ADR and RevPAR registered steady growth year over year. By year-end, Texas will register gains in occupancy and revenue metrics as rebuilding efforts continue in the Houston metro.
FEMA alone estimates that it has placed more than 53,000 individuals in area hotels as of September. ADR in Houston may also register gains despite local authorities' efforts to prevent price gouging. The upswing in occupancy amid rising ADR will boost RevPAR significantly in the short term. Declining occupancy in the Houston metro led to a 4.9% decrease in ADR to $98.16 while RevPAR fell nearly 11% during the previous 12-month period to $60.22.
While Houston will register the largest impact in occupancy as a result of the hurricane, hotels in the markets of San Antonio, Austin and Dallas/Fort Worth may post occupancy gains as residents of Houston seek alternative housing options, says the report.
Buyers remain active and transaction velocity rose year over year during the last 12 months ending in June. In particular, investors sought more upper midscale and upscale assets during this time. Demand also picked up in nearly all the major metros, with Dallas/Fort Worth and Houston comprising a significant portion of transactions. While many properties traded in the $1 million to $10 million price tranche, several assets changed hands above $20 million as institutional buyers remained active. Outside the major markets, several coastal cities garnered investors' attention amid increased visitors, including Corpus Christi.
In Houston, hotel owners are assessing damage from Hurricane Harvey and determining how to better align portfolios for investment needs. Some hoteliers may opt to hold onto properties as high occupancy drives income growth in the short term, while others investors may list assets in hopes of capturing a higher price per room.
All the major Texas markets posted job growth above the national rate during the previous four quarters, benefiting business travel demand. Houston recovered from declining employment last year as 63,700 positions were created, up 2.1% year over year. Dallas/Fort Worth registered the largest gain of 3.4% as 118,100 jobs were created during this time. Office-using employment jumped 4.7% in the metro, the largest increase among the major metros, says Marcus & Millichap.
One nearby metro, Bay City, TX, is booming with hotel activity unrelated to Harvey and instead, due to the development of several industrial projects. In its second Bay City hotel transaction of 2017, CBRE Hotels arranged the sale of Holiday Inn Express & Suites, a 74-room limited-service hotel at 5618 7th St. Houston-based SNI 5618 Investment LP purchased the asset from San Antonio-based Baywood Hotels for an undisclosed price. Michael Yu, Rahul Bijlani and Agrama Mannapperuma represented the seller and assisted the buyer in the transaction.
The buyer currently has a portfolio of apartments across Houston and has been actively looking to enter the hotel market. This is the buyer's first hotel acquisition. SNI 5618 found the asset attractive for the high cash flow and location near the Houston metro.
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Lisa Brown
Lisa Brown is an editor for the south and west regions of GlobeSt.com. She has 25-plus years of real estate experience, with a regional PR role at Grubb & Ellis and a national communications position at MMI. Brown also spent 10 years as executive director at NAIOP San Francisco Bay Area chapter, where she led the organization to achieving its first national award honors and recognition on Capitol Hill. She has written extensively on commercial real estate topics and edited numerous pieces on the subject.
