Taking A Pulse On DFW’s Hotel Market With CBRE’s Jeff Binford

Nearly 23,000 hotel rooms are planned or under construction in the Dallas area. With occupancies not quite as positive as this time in 2016, chatter about overbuilding inevitably surfaces. We asked CBRE Hotels Director Jeff Binford to share some data and thoughts on how the DFW hotel market is faring halfway through 2017. 

Bisnow: How did the DFW hotel market fare in Q2?

Binford: Occupancies are down slightly, which we expected because of new supply entering the market. Last year, we hit all-time highs in occupancy and rate. Because developers saw that coming, there’s a lot of hotel projects in the pipeline. 

Bisnow: Supply and demand was a little out of whack in Q1. How does that look now?

Binford: Probably after 2018 it will level out. In the foreseeable future, I don’t know that we’ll hit these all-time record high occupancies. However, when you have occupancies in the high 60% and low 70%, that’s still healthy. We see things returning to long-term averages by 2019 or 2020. I’m tracking right now 170 properties in various stages of development in the Dallas area, not including the Fort Worth area. That represents 22,875 rooms. Those are in various stages of development. Let’s go through those. 

• Of those [developments], five have already been abandoned. That’s 405 rooms. 
• One has been deferred, so it’s just put on the shelf for another time. That’s 130 rooms.
• Two are rumored but unconfirmed that the project is happening. Those represent 405 rooms. 
• In planning, we have 47 hotels representing 6,619 rooms. 
• In final planning, we have 58 representing 7,616 rooms. 
• And 57 have started construction. That represents 7,700 rooms. 

Of the 170 properties, six really have no [delivery] dates. That’s 1,048 rooms. By the end of 2018, we’ve got 130 properties representing 13,821 rooms. In 2019, I’ve got 45 properties representing 6,397 rooms. In 2020 and beyond, I’ve got eight properties representing 1,206 rooms.

[This area includes cities such as Dallas, Frisco, Plano, Denton, Lewisville, McKinney, Irving.]

Bisnow: Which submarkets are most robust? 

Binford: There are the obvious places where we’re seeing a lot of activity, like Downtown Dallas and Uptown Dallas. There’s a lot of churning in office space, a lot of churning in employment, new attractions and new employers hiring young people. Toyota up in West Plano and Frisco — those areas are on fire. Due to high activity of new employment and new office space in that area, you’ve got a lot of new amenities and food and beverage options. Those make it not only a business traveler’s destination, [but] also leisure travelers too.

Bisnow: Do you hear chatter of overbuilding?

Binford: There’s little doubt in my mind that we will overbuild. Historically, Dallas doesn’t overbuild. It’s the exception not the rule in most of the markets we study.

Also, of these 170 projects I’m tracking, a lot of them will just fall off the board. More and more will be abandoned. Some won’t get their financing. Some of them, logistics just won’t work out. Some will fear there’s too much competition in the market. That’s OK too. Historically, when Dallas sees low occupancies, it’s typically [the] result of a recession or an oil crash or overbuilt office markets or when a big employer leaves. We may see that in Fort Worth, unless those employees can be replaced. 

Bisnow: What’s happening in Fort Worth? How will XTO leaving (moving 1,600 employees to The Woodlands by 2020) impact the hotel market?

Binford: A consultant came to Fort Worth a few years ago and said Downtown Fort Worth needs another 1,000 or 1,200 hotel rooms. Depending on who you ask, people say different things. The Convention and Visitors Bureau thinks they could probably use another Omni Downtown to help with convention business. Local developers are getting to that 1,000 number with 120 rooms here and 240 rooms there. 

First off, I don’t know if I subscribe to the idea that they need all those rooms. Secondly, if they do, I prefer — and I’ve heard the city agrees — one larger than a few smaller hotels. It would help convention business. Right now Downtown [Fort Worth] has three under construction, another five planned. Two of them, I’m tracking the properties, but I don’t know if they can be done in an economically feasible manner. Both of the sites have existing buildings, they’re small, so in addition to those construction costs they have to tear down a building before they ever start. Those projects, I question. 

There’s an Aloft, an Autograph and an AC Hotel. Downtown Fort Worth is about a year behind Dallas in terms of new supply really hurting the market. This year, Dallas is going to see a lot of supply, and next year Fort Worth is going to see much more supply. I haven’t seen midyear numbers, but I think the Fort Worth market is strong and has a lot of potential. But it won’t be enjoying the occupancies its had in recent years starting next year. 

Bisnow: Dallas has started to see a lot more dual-branded hotels and boutique hotels. What’s your take on that?

Binford: Dual-brands have been around for several years, but they’re just now hitting Texas and the DFW markets. Initially, I had a lot of questions about them. I’m beginning to like them because there are a lot of operating efficiencies. They can complement each other. You’re attracting different customer profiles. If one property is full, you can put them in the other property. There are a lot of benefits. 

There are a lot of boutiques here. I like the boutiques to a point. I don’t like the beds that are six inches off the floor. They look great, but they’re not functional for Jeff Binford. There are a lot of boutique hotels, but few of them are truly independent. Many have soft brands, like Moxie and Autograph by Marriott. We’re seeing those and I think it’s a great way to address the millennial travelers and experiential travel. I think they address the local nuances very well. They have more of a social aspect than big-box hotels. 

Bisnow: How are the two leading indicators of hotel fundamentals — revenue per available room and average daily room rates — faring halfway through 2017?

Binford: Last year, Dallas had 71.4% occupancy citywide. We’re forecasting 70% this year, so a slight drop. We’ve got a 5% increase in supply forecasted and a 3% increase in demand. In mid-2016, occupancy was 74% citywide. Now we’re at 71.4%, so down three points. We know there is and will continue to be more supply, which will drop occupancy a bit more.

The true measure, of course, is RevPAR. Because we have a decline in occupancy and in increase in average daily room rate, we have a small decline in RevPAR of about 1.5%. 

Bisnow: Anything that gives you pause?

Binford: No, and I say that quickly and with confidence.