Austin’s hotel boom continues, especially downtown

A hotel building boom continues unabated in Central Austin, pumping hundreds of millions of dollars into the local economy, creating jobs and, experts say, helping grow Austin’s tourism industry.

From 2011 to 2015, the most recent year for which data is available, revenue for Austin hotel room rentals jumped nearly 60 percent, topping the $1 billion mark last year, according to data from the Texas comptroller’s office. In that same period, more than 4,500 new hotel rooms opened in the city, according to the Austin Convention and Visitor’s Bureau, a 15.2 percent increase. And more rooms are on the way, including the 1,066-room Fairmont Austin, which will become the city’s largest hotel when it opens in 2017.

The surge in hotel building has created jobs and new tax revenue for the city, but perhaps more importantly it has improved Austin’s standing as a tourist and convention city, industry experts say. Specifically, the boom in downtown hotel building — which has surged by nearly 50 percent, adding more than 2,100 new rooms since 2011, highlighted by the 1,000-room plus JW Marriott — has put Austin in play for larger conventions, said Rob Hagelberg, general manager of the Four Seasons Austin hotel.

“Our convention center was underutilized because we didn’t have enough hotel rooms,” Hagelberg said. “We’re going to get to the point where the convention center becomes a little undersized for the number of hotel rooms.”

The 28 downtown area hotels generated more than $400 million in 2015 alone, a 71 percent increase from 2011 and almost 40 percent of the city’s total, according to data from the comptroller’s office. The 1,012 room JW Marriott ended the year as the biggest breadwinner of the downtown bunch. After opening its doors in mid-February the hotel generated $64.5 million in revenue from room rentals alone. That topped the second-highest earner, the Hilton Austin, by more than $10 million, according to the comptroller’s office data.

“I think as a whole the Marriott has had a positive impact because it brings business demand into the city that didn’t exist before,” Hagelberg said. “There’s an enormous customer base that Marriott has that wouldn’t fit in any of the existing Marriotts in Austin.”

‘An attractive market’

Austin’s hotel building boom is driven by basic market forces like population growth, but also by the city’s cultural appeal as a musical hotspot, culinary destination and technology hub, industry experts say.

“Austin is an attractive market for us because the demand continues, even with each new hotel that’s built,” said Chris Anderson, chief revenue officer for White Lodging Services Corp., a Merrillville, Ind.-based hotel investment, development and management company that is the dominant hotel owner in downtown Austin. White Lodging developed the 1,012-room JW Marriott and a new 366-room Westin downtown, and is building a dual-branded aloft and Element hotel project at Congress Avenue and East Seventh Street.

“The city is attractive for both business and leisure travelers,” Anderson said. “It’s why you’ll see business meetings at the lobby bar in the JW Marriott during the week and a bachelorette party at that same table on a weekend evening.”

The revenue generated by the hotel industry also contributes to the city of Austin’s budget. Every hotel room check-in — except when the room rate is below $15 per night — is subject to a 9 percent tax imposed by the city.

With roughly $1 billion in revenue in 2015, that amounted to about $82 million in tax dollars, after write-offs and exemptions. The tax is earmarked to “promote tourism and the convention and hotel industry” according to the city financial services office.

“From our perspective it’s a very positive thing,” Hagelberg said. “It creates jobs, tax income for the city and the state that doesn’t put a burden on the local population.”

The additional ripple effects of the hotel industry’s growth can be difficult to pinpoint, as hotels don’t necessarily attract tourists to a given destination. Austin economist Brian Kelsey said hotel construction brings an initial boost to middle wage employment, but most of the permanent hotel jobs are relatively low wage positions. That means the increased spending at local businesses tends to come from the pockets of out-of-towners rather than its own residents.

Conventions bring many of these visitors to town. Since 2011, gatherings of all sizes have assembled in Austin in increasing numbers. Conventions booked through the city’s convention and visitors bureau have increased by more than 50 percent, translating to over 200 more groups traveling to the city., according to the Austin Convention and Visitors Bureau.

“There truly is no ‘magic number’ when it comes to inventory since it is all market driven, but Austin’s demand has grown an average of 5 percent per year for the last decade which is extremely healthy for a tourism market,” Austin Convention and Visitors Bureau senior communications manager Shilpa Bakre.

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