Houston Occupancy Lags Behind Rest Of Country, But Hotel Operators Are Bullish On Summer Convention Season
Business travel nationwide remains unlikely to bring in 2019-level revenues this year. But hotel leaders in office-dense Houston are optimistic about their prospects ahead of a summer they believe will be abundant with conventions, business travel and tourism.
"I think we're going to have a gangbuster summer," said Jamal Mazhar, director of sales and marketing at CityCentre hotel The Moran, said. "We think corporate [travel] is going to hold through the summer because there's a lot of pent-up demand for meetings, events and groups."
Amid strong spring break tourism and upcoming conventions that are set to draw tens of thousands to Houston, hotel leaders told Bisnow occupancy numbers are beginning to creep back to pre-pandemic levels, though the city has a higher mountain to climb than other metros. Cindy Decker, vice president of market strategy at Houston First, which markets Houston's convention centers and tourism, said room rates have already bumped above 2019's figures.
"I'm a little bullish," Decker said, citing CBRE data that suggests third quarter 2022 occupancy will be just under 60%. "I have seen the numbers come in really strong. March, I think was a really big uptick for us. Having grown so much, I think the third quarter will be a little bit stronger than we expected."
Houston hospitality leaders have different ideas about when the city's hotel occupancy will truly reach pre-pandemic levels, with estimates ranging from as soon as fall 2022 to as far away as 2024. April 2022 data from Amadeus Hospitality, a hospitality technology company, indicates that worldwide, hotel occupancy is only four points below 2019 levels. But Amadeus data places Houston — tied with Minneapolis — as the metro area with the lowest expected April occupancy of 24%, as of March 17.
Decker said that projections may give a less-than-accurate picture of occupancy since anywhere from 50% to 70% of Houston hotel bookings are made within 30 days of the stay. In April 2019, for example, occupancy went from 21% to 66% in the month leading up to it, she said. Tourist markets have longer booking windows, but in Houston, which typically sees about 35% of its reservations from business travel, bookings are frequently made as little as five or 10 days ahead of time.
Mirroring the struggle of the office market to bounce back, business travel has accounted for the bulk of the industry's pain since the pandemic began. The 35% of Houston bookings that formerly came from business travel has dipped to between 20% and 27%. Decker said that's a significant improvement, however, from the height of a pandemic that turned hotels into ghost towns.
Though Houston is still shy of bouncing back to 2019 levels, other Texas metros are already there. End-of-year 2021 revenue at Austin-Round Rock metro hotels was up 178% year-over-year, and San Antonio was up 109%, according to the latest data from San Antonio-based hotel consultancy Source Strategies. Though both the Dallas and Houston metros are larger hotel markets than Austin and San Antonio, each accounting for about 18% of the total Texas market, both have yet to catch up to fourth-quarter 2019 revenue. Both sit at about 2% under 2019 figures. Q4 2021 in Houston saw about $576M in revenue for hotels, just below Q4 2019's $585M.
"We saw that in the fourth quarter, San Antonio exceeded their 2019 level of revenue and demand. That's a really good sign for San Antonio," Source Strategies Senior Vice President Paul Vaughn said. "But San Antonio relies on conventions to pad out the first quarter. So, we're waiting to see what those numbers look like to see how that maintains."
Vaughn offered one of the more conservative estimates for when business travel will go back to pre-pandemic levels, predicting it will not normalize until 2024. As Houston eyes major upcoming conventions in Houston through the summer — Decker said about seven of Houston First's 29 conventions this year will be in May and June — Vaughn wondered how many will actually attend.
"Several conventions that we've heard about have been put on, but attendance was a little lower than they would have expected," he said. "You still have some reluctance on the part of some consumers, but really, what we've seen to date is that consumers are having less and less concern about gathering. If that trend continues, which we expect it to, you'll have a pretty solid convention season."
The Cattle Industry Convention and National Cattlemen's Beef Association Trade Show, held in February, was the largest business-to-business meeting at the George R. Brown Convention Center since the pandemic started, Houston First said at the time, with 6,200 people attending. In the months to come, Houston First expects thousands more from upcoming events held by Rotary International and the National Rifle Association, which last year canceled its annual Houston get-together in the wake of the delta variant outbreak.
Q1 2022 saw 78% attendance at Houston First's conventions, compared to 40% or 50% this time last year. Concerts, athletic events and youth groups are expected to further boost downtown hotels, Decker said.
At The Moran in CityCentre, the hotel is seeing business and meeting travel trickle back, bolstering the usually sleepy weekday bookings, Mazhar said. The hotel, which is surrounded by Class-A offices, usually has a reverse business-leisure ratio to the rest of the city, about 70% business and 30% leisure, Mazhar said, though leisure dropped to about 35% of its business amid the pandemic.
"I think that a lot of it has to do with the fact that we were very proactive during the pandemic. We were one of the first hotels that brought back our business travel sales manager," Mazhar said. "We stayed very, very close to our clients during the entire course of the pandemic, letting them know almost monthly what was going on at the hotel, even though sometimes the news wasn't good to share. We actually got closer to a lot of the global travel managers, or a lot of the large oil and gas companies, through the course of the pandemic. As a result, as travelers resumed, we have been entrusted with their first international travelers coming to Houston."
As hotels recover, Decker said the supply of rooms in Houston has actually increased about 4%, with 98,000 rooms now available, making it the seventh-largest market in the nation. But Vaughn pointed out Houston is an atypical market due to the number of low-priced options available. About half of Houston's 1,100-odd hotels are lower-priced, he said. Although they are not making a significant profit, Vaughn said, they have been able to bring in enough traffic to keep the lights on, giving Houston an oversupply of budget hotels.
"You can maintain that business with a moderate amount of occupancy and a moderate [room] rate," Vaughn said. "Especially if you're talking about an older hotel, maybe the note's been paid for, that property basically just has to make enough to cover expenses and property taxes and payroll. It can be a viable business, even if it's not making a lot of money."
As luxury or otherwise pricey hotels suffered during pandemic lockdowns, those unable to afford to delay travel, living in hotels or visiting family on a small budget kept budget hotels afloat. Luxury and upscale hotels have begun to bounce back statewide, posting 104% and 81% revenue increases respectively since 2020, according to Source Strategies data. But extended-stay and midscale hotels maintain some of the highest occupancy in Texas, with extended-stay hotels nearly 70% occupied at the end of 2021.
Hotel experts are generally cheery about the coming months, particularly when it comes to summer tourist business. With major airlines and transportation companies like Uber dropping mask mandates, Decker is hopeful those uneasy about traveling masked for hours will be more incentivized to take a vacation.
Operators admit, though, that business travel, the last piece of the recovery puzzle, is a persistent unknown.
"Companies are putting travel budgets back in place and spending money on travel," Decker said. "It's just a matter of them lifting their restrictions for safety purposes, still. But they are starting to, from everything I've heard."
