by Joe Lanane
Analyst: Rising occupancy drives up room rates
The largest hotel in Austin history is nearly ready to open, marking the first of multiple large-scale hospitality projects expected to debut in 2015 and beyond.
The first guests at the JW Marriott Austin, a 1,012-room hotel along downtown Congress Avenue, arrive Feb. 13. The nearly complete project is among eight downtown-area hotels under construction, and numerous other concepts remain in the planning stages that could potentially double the number of Central Austin hotel rooms by 2017. Having nearly 10,000 downtown-based hotel rooms by then could help elevate Austin to new opportunities, JW Marriott General Manager Scott Blalock said.
“We compete as much with other convention cities as hotels within Austin, and we’re opening up Austin to a whole new group of conventions we couldn’t host before,” Blalock said.
High occupancy, high rates
When Hilton Austin—the city’s first convention hotel—opened in 2003, 60 percent of all bookings represented new business to Austin, according to Robert Watson, the hotel’s general manager. JW Marriott officials also project first-time Austin visitors will occupy up to 60 percent of the 512,000 rooms pre-booked through 2021.
And Austin already is riding a strong wave of momentum. For example, when Blalock helped launch the last JW Marriott property, a 1,005-room convention hotel in Indianapolis, the downtown occupancy rate barely exceeded 50 percent, he said. Austin, on the other hand, ended 2014 with a 72.3 percent hotel occupancy rate, according to STR, a hospitality industry analysis firm.
In other words, more than seven out of every 10 Austin hotel rooms were booked, on average, each night in 2014.
“To average more than 70 percent, you pretty much have to be sold out Tuesday, Wednesday, Friday and Saturday,” said Jan Freitag, STR vice president of global development. “Occupancy for Austin is very, very healthy.”
But high occupancy creates higher room rates, Freitag said, with the average Austin hotel room costing $128.90 in 2014, an increase of almost $10 from 2013 and a nearly $30 increase since 2010.
“A lot of times hotels are full, so it’s a seller’s market,” he said. “They have the pricing power.”
However, Austin’s occupancy rate in 2014 grew at its slowest level in five years because no significant new hotels opened, Freitag said. More than 1,500 rooms are expected to come online in 2015, which—should demand remain the same—potentially decreases the city’s occupancy rate for the first time in five years and could cause hotels to drop room rates to remain competitive.
“We have to make sure Austin doesn’t price itself out of the market,” said James Walsh, immediate past president of the Austin Hotel & Lodging Association.
Beyond SXSW and ACL
Contrary to popular belief, most of Austin’s hotel business occurs beyond the large-scale events that typically define the city’s tourism industry, said Bob Lander, president/CEO of the Austin Convention and Visitors Bureau. He leads the public agency that was responsible for helping to book more than 600,000 room nights in Austin last year, or approximately one-quarter of all hotel sales.
“What [Austin residents] don’t see are the other 46 weeks of the year when we bring in doctors, architects and scientists who we don’t even notice are here,” Lander said. “But I guarantee the bartenders, the waiters and hotel workers all know they’re here.”
Austin is also targeting more international visitors, a market Lander said he considers relatively untapped despite hosting the Formula 1 United States Grand Prix the past three years. International travelers typically benefit the tourism economy two to three times more than domestic tourists, he said.
“The U.S. is lagging behind the rest of the world on international visitations,” Lander said. “We need to be in that game, and that’s part of our long-term vision.”
But there is also money to be made serving Austin’s event and hospitality needs. The Westin Austin Downtown debuts July 2 and expects to serve a much more localized clientele than larger convention hotels, General Manager Kristofer Carlson said.
“Our hotel more than likely will attract the local corporate business seeking to book downtown,” he said, adding that weddings are also expected to account for a significant portion of business at the 366-room hotel.
Other existing hotels, such as Hyatt Regency Austin, first built in 1982, have sought upgrades to keep up with changing demands. Last year the 488-room hotel south of Lady Bird Lake completed renovations on the city’s second-largest ballroom attached to a new seven-story, 794-space parking garage. The ballroom is separate from the hotel and is intended for local large-scale events, General Manager Lance Stumpf said.
“For the most part [expanding for local events] was an advantage for us, and we sell it as that,” Stumpf said. “I believe down the road, it’s going to benefit us as well as the local community.”
Hilton Austin also renovated its 800 guest rooms last year as part of a $22 million makeover. Watson said the next step is to upgrade the hotel’s event spaces during the next three years to help Hilton Austin leverage its location next to the Austin Convention Center.
“Being this close, most of those meeting planners are looking at rooms within walking distance,” Watson said.
Next: new convention center
The new hotel rooms will allow Austin to soon compete against other convention city heavyweights, such as San Antonio, New Orleans, Phoenix and Las Vegas, Walsh said. The next step, he said, is to upgrade the Austin Convention Center.
“We’ve got to remain competitive and make sure we’re spending the appropriate dollars to modernize the existing convention center because everyone is building bigger and newer,” Walsh said. “You’ve got to keep up, or try to stay ahead, really.”
Lander’s bureau is already six months into a study to decide what upgrades and other improvements might be needed at the convention center. The report could reveal by April what long-term strategy to take, Lander said.
Until the Austin Convention Center is expanded, Austin risks losing business to those larger convention cities, he said.
“Several factors separate Austin,” Lander said. “The cool factor is one of them, but let me tell you we’ve lost business because we didn’t have 10 extra meeting rooms that a group needed.”