Cheers and the clamor of new construction are among the dominant sounds wafting above the downtown Austin skyline of late, as the city welcomes a new wave of hotel construction and construction plans. Not a moment too soon. For several years, the hospitality industry has fretted that Austin’s growth as a destination city is outpacing the development of hotel accommodations, particularly in and around downtown.
Voila! Hospitality’s proverbial “rooms available” signs are flickering brighter.
By early 2013, no fewer than five major hotels will be under construction, delivering more than 2,000 rooms to Austin’s central business district. From all indications, more hotel developments are in the offing for later next year.
That’s welcome news for those who promote Austin’s viability as a destination city and who roll out the red carpet for everything from conventions and corporate meetings to spring break activities and mega-events.
In mid-November, Austin will debut as host city, through 2021, of the Formula One U.S. Grand Prix, accommodating Formula One racing’s return to the U.S. following a five-year absence. This high-profile race could attract some 300,000 fans. The South by Southwest Film Conference and Festival, Rodeo Austin, and the Austin City Limits Music Festival are just a few of the signature events on an ever expanding calendar of music concerts, festivals, sports competitions and other attractions and cultural offerings that have helped make Austin trendy and magnetic—while spiking demand for more hotel rooms.
The expansion of hospitality accommodations has implications not just for the most prominent events, but also for meeting and event planners at the University of Texas, the city’s booming tech industry, city and state governments, and other high-volume visitor generators.
In the works are new hotel properties ranging from high-rise, convention-style, full-service hotels with meeting and event space, including a 1012-room JW Marriott, to properties approximately one-third that size, as well as boutique hotels.
The number of hotel rooms in the city’s central business district is put between 6,000 and 7,500 (with approximately 30,000 rooms citywide). An occupancy rate downtown that exceeds 70% suggests that the central business district market can indeed support additional capacity.
Austin’s accommodations crunch is not a result of hotel developers overlooking the city’s inventory shortage. Rather, the economic downturn squeezed construction financing and stalled several proposed major projects, even as Austin burnished its reputation as a “hot” city and continued to grow. And while the city’s overall room count has increased in recent years, the expansion did not dramatically improve capacity downtown.
The downtown hospitality growth spurt will not instantly solve demand. Nor will it happen without presenting some challenges. The new wave of hotel construction is part of an overall downtown building boom that also includes high-rise office buildings as well as mixed-use and multi-family developments cropping up in response to young, single professionals’ enchantment with downtown living. If current projects and plans pan out, no fewer than six high-rise buildings will soon soar skyward—with at least five more on the books for 2013. Expect construction costs to rise.
In fact, it’s happening already. Multifamily housing projects experienced a 20% cost increase over the past 12 months. The new hotel projects will face escalating costs of concrete, rebar, sheetrock and other materials. Another factor in the rising-costs equation will be intense competition for skilled labor. It’s also possible all the new-construction projects will inspire existing hotel owners to update and refurbish their properties, creating the potential for even more unsettling market dynamics.
For contractors, the downtown hospitality boom means more exciting projects on the drawing boards. For the city, the new accommodations hold the promise of Austin attracting not just more grand-scale sports and entertainment events. Conventions and trade shows that previously overlooked the city are now more likely to come calling.
— Matt Murphy, director of business development, Hardin Construction Co., LLC