Sizable increase in hotels planned for Austin’s core


Nearly 10 new hotels proposed for downtown area

As Austin continues to be a destination for domestic and international tourists through events, festivals and conventions, hotel development is increasing in the area and especially downtown.

Mayor Lee Leffingwell said in his State of the City address Feb. 5 that tourism is a sector the city and its residents should want to see grow.

“The hotels we need are finally coming online,” Leffingwell said in his address. “Our reputation for live music and good food is international. People from across the country and around the world want to visit Austin, and we should want them to.”

The market

Chris Remund, an associate with HVS San Francisco, a global hospitality service, said the “big story” in Austin right now is the new hotels coming into the market.

“Everyone is excited about the Austin market, obviously,” he said. “It’s certainly possible that there will be even more supply moving in. It’s a pretty big base of rooms that is being proposed right now given how few hotels there are actually [in]downtown right now.”

Remund was in Austin in January conducting a market study on the city for a client who is active in the area. He said if the number of hotel rooms in the downtown area were counted, there would be between 6,000 and 8,000 rooms. The proposed supply, he said, could be more than a 35 percent increase in the number of rooms downtown.

“When large hotels such as the JW Marriott and Fairmont move into markets like this, they induce a lot of demand,” Remund said. “You might think that people would be worried about them cannibalizing and taking demand from other hotels, but really they will most likely induce a large share of the demand they actually get at the hotel, so that will lift the whole market up.”

According to information provided by the Austin Convention & Visitors Bureau, as of September, the Austin Metropolitan Statistical Area—an area that includes Bastrop, Caldwell, Hays, Travis and Williamson counties—has 260 hotels and 29,597 rooms. In 2002, the Austin area had 216 hotels with 23,952 rooms. According to PKF Consulting USA—an international firm providing services to the hospitality, real estate and tourism industries, the Austin MSA in 2012 had an occupancy rate of 68 percent while downtown had an occupancy rate of 76.5 percent. The national occupancy rate in 2012 was about 61 percent.

As of January, there are about 10 hotel projects in the downtown area in various stages of review and construction, according to the city’s Planning and Development Review Department. The department also listed 15 prominent hotel projects in planning and construction phases throughout the city as of November 2012, including hotels downtown.

Stephen Genovesi, senior vice president of sales with the Austin Convention & Visitors Bureau, said he attributes the growth in the hotel industry to conventions, a strong business climate and leisure activities including events and festivals.

“I think we’re the envy of a lot of cities in that some cities only have the convention side,” Genovesi said. “Some have maybe a stronger leisure side but not the convention side, but we have all three. It really is a great position to be in, especially when you’re looking at opportunity in the future for hotels.”

Genovesi said with the additional hotels, Austin is being considered for larger conventions that will bring more people downtown and help bolster local businesses with increased tourism traffic.

“Why would you not want to live in a city that’s attractive to tourists?” Genovesi said. “That just adds to the whole value of the marketability for living here. And there’s certain wonderful attractions and things that result from the tourism industry growing that locals can take advantage of. Some of the best cities in the world that people like to live in are also wonderful tourist cities.”

Hotel development and effect

White Lodging Services Corp. is a hotel development, ownership and management company that manages 21 hotels in the area. White Lodging is developing three hotels in downtown Austin, including a 1,012-room JW Marriott Austin at 110 E. Second St., a 342-room Westin Austin Downtown Hotel at Fifth and Brazos streets, and a 296-room Hyatt Place at 211 E. Third St.

Deno Yiankes, CEO of the Investments and Development division at White Lodging, said Austin is a positive market for hotel development, indicating key metrics including population growth, travel infrastructure, and economic and job growth when looking to invest in a market. He said hotel development is a good thing for the city through job generation and hotel design.

“These aren’t hotels that are just going to be prototypes,” Yiankes said. “We take a lot of time with our architects and interior designers to try to capture some of the local attributes, whether it is using some natural stone and materials that are found [in]and unique to Austin or incorporating some of the artwork that’s local to the market.”

Another benefit the city sees from an increase in the number of hotels and demand is through the 9 cent hotel occupancy tax. In the 2012–13 budget, the city expects to collect $51,489,237 from the tax. HOT funds are used to promote tourism and the convention industry.

But developing a hotel, especially downtown, comes with its share of difficulties including small lot sizes, cost of land and adhering to timelines.

“It’s not only difficult to build, but it’s also very expensive,” said David Kahn, managing partner at Colina West Ltd., real estate development company.

Kahn presented to Austin City Council on Jan. 31 a hotel plan at the intersection of Congress Avenue and Eighth Street. However, the project was denied a variance in the Congress Avenue Overlay District, which requires buildings have a 60-foot setback at 90 feet of height.

The hotel, Kahn said, had the potential to be a “catalyst for a resurgence of the north downtown area” through its mixed-use concept and unique Austin feel.

“We thought a 24-hour hotel would bring customers and traffic to Congress, and it would be great for people wanting to see a show at The Paramount or the State [theaters],” Kahn said. “We thought it would revive this whole area of downtown.”

Kahn said it is not economically feasible to develop the property without the variance.

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