July 2021

 

Resilience of Southern Hospitality: The Austin Real Estate Boom

On January 21 st , 2020, the Centers for Disease Control and Prevention (CDC) confirmed the first United States Coronavirus case, which turned into a life-altering crisis followed by global air travel bans, government restrictions and city lockdowns. It was also the start of the U.S. lodging industry’s rude awakening to unprecedented market conditions and an all-time low in occupancy rates, ADR and RevPAR. The pandemic has had an economic impact “far worse than 9/11 and the Great Recession combined,” said the late Marriott CEO, Arne Sorenson. However, the hospitality industry has always recovered from unpredictable events and downturns, and both full-service and select-service assets are expected to realize a rapid economic turnaround in 2021 and 2022 amid the Covid-19 pandemic. Among other markets, this statement is proving to be legitimate in Austin, Texas: a metropolitan culture hub known as Silicon Hills for its cluster of tech companies and startups. Austin is showing its ability to be extraordinarily resilient as the slow return towards normalcy is underway.

 

The Austin market lost approximately $1B in hotel revenue in 2020. Conventions and major revenue-generating events were called off, according to the Austin Biz Journal – but the resilience of southern hospitality willed through with no signs of scarcity in hotel construction. Hotel Market Data (HMD) indicates that Austin is to experience a +10% increase in key count supply over the next 12 months, which equates to over 4,000 new hotel rooms becoming available by the end of Q4 2021. This effects total supply in the market to increase from 40,676 currently available to over 44,790 available rooms. Additionally, HMD Index predicts the supply of luxury rooms in Austin is expected to increase by +12.85% and the supply of upscale hotel rooms is expected to increase by +13.55%. By the end of Q4 2021, Marriott is expected to see its greatest increase in hotel room supply in the Austin market with +14.48% growth, while Hilton is a close runner-up with growth forecast at +12.75%.

 

With compelling enterprise shifts it is no surprise that the city of Austin is emerging as the next big tech center. Oracle completed its relocation of their headquarters to Austin in 2019, Elon Musk announced construction of the new Tesla Gigafactory, and Apple now houses its second-largest campus in the nation, with roughly 6,000 employees. Other well-known companies that occupy the Austin MSA are Dell (global headquarters), Facebook, Google, Amazon, IBM and National Instruments. As of 2020, the city of Austin added 5,600 jobs in December, the city-specific leisure and hospitality sector added jobs in six of the last eight months, seasonal adjusted unemployment rate decreased from 6.3% in November to 5.7% in December, and the city had recovered 94% of the jobs lost in March and April, according to Texas National Title. With leading companies having already relocated to or expanded in Austin, the entrepreneurial atmosphere will be bolstered when rising talent from these companies embark on launching new ventures.

 

In the wake of it all, American Airlines is arranging for the upsurge of vaccinated travel and has its plans set on Austin, despite Dallas being the airline’s hub. The city is receiving 10 routes this spring and summer, which are geared towards the rise of leisure flyers and the optimistic return of business travel. To put into perspective, Austin locals can now fly direct to Nashville, Las Vegas, Orlando, New Orleans, Raleigh, Tampa, D.C., Aspen, Los Cabos, and Destin (and vice versa). As Texas continues to welcome travelers into the state, Austin has made its name as a globally recognized destination for sought-after events such as South by Southwest, Austin City Limits, and the Formula 1 and MotoGP championships.

 

While the future of the U.S. lodging industry is yet to be seen, trends such as contactless experiences, rigorous health and cleanliness protocols, and the upswing of maintaining one’s lifestyle on the road, will all subsequently play an integral role for both business and leisure travelers when deciding their accommodation of choice. A key area of focus towards the industry’s road to recovery must include the implementation of direct sales strategies that promote staycations. Large states such as Texas will benefit from this more than others. Those hotels who survive the upward battle of the industry’s recovery will also need to have mastered safety and hygiene, green and sustainability, and customized digital experiences to offer guests. Looking ahead, we can expect Austin to spearhead the growth of Texas real estate with its rapid increase in supply, new jobs becoming available and its promising path to innovation.

 

Zuhair A. Bheda is an Investment Sales Advisor at Besen Partners, Hotel Advisory Group, New York, NY.