Unlocking Opportunities in the Austin and San Antonio Hospitality Markets: A Comprehensive Review

By: Kaitie Moore Underwood | REALTOR®, Blue Collar Commercial Group

As potential hotel investors eye the thriving hospitality markets of Austin and San Antonio, it’s essential to dive into the latest insights provided by the Hospitality Market Reports for these two dynamic Texan cities. In this article, I will uncover the highlights that could shape your investment decisions and strategies for success.

San Antonio: A Steady Growth Momentum

1. Recent Developments:

• Over the past year, San Antonio has welcomed eight new buildings, adding a total of 720 rooms to its thriving hospitality inventory. This steady expansion indicates a healthy appetite for accommodation in the city. Performance can be gleaned from the following metrics:

2. Occupancy and Construction Trends:

• Notably, the highest occupancy market segment in San Antonio, as well as a significant portion of hotels under construction, belongs to the Upscale/Upper Midscale hotel class. This signals a strong demand for high-quality accommodations.

3. Promising Pipeline:

• Looking ahead to 2024 and 2025, the pipeline for San Antonio appears promising, with 24 projects in the final planning stages. Two standout projects are particularly exciting:
  • The 347-room Kimpton San Antonio, a hotel that creatively repurposes an 1850’s-original schoolhouse within the Historic HemisFair Park.
  • The 112-room Arista San Antonio by Accor Hotel Brand, Morgans Originals, which transforms a CPS Energy Office into a chic hotel.

4. Economic Considerations:

• The market’s construction pipeline may experience some moderation due to tighter lending conditions driven by economic uncertainties. However, it’s possible that a few projects could kick off in late 2023, depending on market dynamics.

5. Notable Transactions:

• One of the noteworthy transactions in San Antonio was the sale of the 1,002-room JW Marriott Hill Country Resort for a staggering $800 million. Ryman Hospitality Properties acquired this iconic property in June 2023, showcasing the allure of the San Antonio market.

6. Market Cap Rates and Stability:

• Annual 2023 market cap rates in San Antonio have ranged from 7.5% to 9.1%. Looking forward, cap rates are expected to experience a moderate increase as the market navigates through a mild recession and economic fluctuations.

7. CMBS Loans:

• Currently, 36 properties in San Antonio have active CMBS loans, with 21 set to mature within the next two years. This provides potential investors with opportunities to explore properties with maturing loans and potentially favorable terms.

Austin: A Vibrant Landscape for Hospitality Investment

1. Recent Developments:

• In the past year, Austin has witnessed the delivery of ten new buildings, contributing a substantial 1,300 rooms to the city’s ever-expanding hospitality landscape. Performance can be gleaned from the following metrics:

2. Construction Focus:

• The majority of hotels currently under construction in Austin fall into the limited-service category, catering to travelers seeking efficient and cost-effective accommodations.

3. Robust Construction Activity:

• Austin boasts 22 projects and 2,800 rooms under construction, accounting for 5.7% of the existing room supply. This places Austin among the top 20 cities in the U.S. with the highest construction activity relative to existing inventory.

4. Thriving CBD Growth:

• Austin’s Central Business District (CBD) has been a focal point for growth in recent years and continues to lead in terms of room expansion. Notable projects include:
  • The 205-room Cambria Hotel, slated to open in 2023.
  • The 344-room CitizenM Austin hotel, representing the first project in Texas for this Dutch hospitality brand.
  • The Luxury Class 1 Hotel Austin, a mixed-use residential and retail tower set to become the tallest building in Texas upon completion in 2026, offering breathtaking views of the historic Rainey Street District.

5. Economic Considerations:

• Similar to San Antonio, Austin’s construction pipeline may see some restraint due to tighter lending conditions resulting from economic uncertainties. Nonetheless, the possibility of additional projects emerging in late 2023 remains on the horizon.

6. Key Acquisition:

• Nashville-based Ryman Hospitality Properties made a significant investment in Austin, acquiring Austin’s Block 21 for $260 million. This includes the 251-room W Austin Hotel & Residences and the iconic Moody Theatre, home to the Austin City Limits show.

7. CMBS Loans and Potential Opportunities:

• Austin also has 32 properties with active CMBS loans. Investors should keep a watchful eye on properties with maturing CMBS loans, as they may become available at favorable terms. Notably, two Luxury hotels and three Upper-Upscale hotels are among those with maturing loans.

8. Watchlist for Distress:

• A total of 17 properties in Austin are currently listed on the CMBS watchlist, indicating potential early signs of distress. Among them are Extended Stay Americas, Courtyard Austin University Area, Fairmont CBD, Embassy Suites Austin NW, and Wyndham Garden South, presenting investment opportunities for astute buyers.

Conclusion: The hospitality markets in both Austin and San Antonio offer promising opportunities for potential investors. With recent developments, robust construction pipelines, and a variety of property types, these Texas cities present diverse options to consider. However, it’s crucial to navigate the market with a keen understanding of economic factors, cap rates, and CMBS loans to make informed investment decisions. As both markets adapt to economic fluctuations, those who stay attentive to trends and potential opportunities stand to reap rewards in these thriving Texan cities.

For full Hospitality Market Reports, please click:

SAN ANTONIO Hospitality Market Reports

AUSTIN Hospitality Market Reports