Houston hotel market, worst in US, faces pain from Harvey

[SEATTLE] Houston's hotel market, already the worst-performing in the US, is poised to take a further beating from Hurricane Harvey as the natural disaster creates chaos in a city that's been reeling from low oil prices for the past three years.

Some area hotels are offering discounts to alleviate the temporary housing emergency, and Texas Governor Greg Abbott on Friday suspended the state and local hotel and motel occupancy tax for relief-effort personnel and storm victims. The suspension will last 14 days, according to the governor's website.

The area's hotels may be filled at first by first responders, Federal Emergency Management Agency workers, insurance adjusters and others dealing with Harvey's aftermath - and there may be fewer available rooms as some properties suffer damage from the storm. The longer-term impact for lodging, however, is likely to be negative, said Carter Wilson, vice president of consulting and analytics at STR, a data provider for the industry.

"It's going to be very hard on Houston for the foreseeable future," Mr Wilson said. Marriott International Inc and Hilton Worldwide Holdings Inc, the two largest hotel operators globally, said hotels in the affected area have the authority to waive cancellation fees.

The hotel industry in Houston, the fourth-largest city in the US and its energy capital, has struggled because of depressed oil prices. Occupancy and room rates in the city are down for the third consecutive year, according to STR. Revenue per available room, an industry performance gauge, declined 4.6 per cent year to date, after falling 12.5 per cent last year and 3.4 per cent in 2015, the firm said.

Houston's hotel occupancy in the first seven months of 2017 averaged 62.7 per cent, the lowest among the top 25 US markets, according to STR. Houston hotel room rates are the sixth-lowest among those 25 areas, averaging US$107 a night this year, below the US$127 US average, STR data show.

Hilton, the world's second-biggest hotel operator, said Monday that its properties in the Houston area haven't had any "significant physical damage and remain open and operational with limited services." The company cited minor water damage and said that in some cases it's offering limited services because of disruptions to food deliveries or people being unable to get to work. Hilton said it has more than 1,000 workers in the flooded areas.

Initially, hotel demand will likely rise because of Harvey, with the hurricane "creating a temporary housing emergency in the state of Texas," Mr Abbott said in a statement on Aug 25. Harvey may end up boosting revenue for hotels outside the Houston area as demand migrates away from the storm-hit area, including bookings for events such as conferences, said Mr Wilson of STR.

Real estate investment trusts that own hotels are likely to be the only REIT segment to benefit from the storm, with displaced residents and aid workers driving an increase in demand from September to December, Michael Carroll, an analyst at RBC Capital Markets LLC, wrote in a note. REITs of other types, including apartment and health-care landlords, should see only modest financial impact from Harvey, according to Mr Carroll.

Dallas hotels could benefit, as could hotels near airports in cities where travelers are stranded by the temporary closing of Houston's airport, Mr Wilson said. Houston is a gateway city to Central and South America.

BLOOMBERG