Market of the Month - Austin, Texas
Austin, Texas, continues to stand out as one of the nation's most dynamic and fastest-growing metropolitan areas, powered by a booming tech sector, a thriving cultural scene, and ongoing infrastructure investment. As the 10th-largest city in the United States and the fastest-growing large metro in Texas, Austin blends innovation with lifestyle, making it a magnet for both talent and capital. Austin has become a hub for corporate headquarters and regional offices due to its relatively low costs compared to other major metropolitan areas; notable Fortune 500 companies based in Austin include AMD, Kendra Scott, and Whole Foods. Anchored by The University of Texas at Austin (UT) and a burgeoning life sciences sector, the city's diversified economy continues to outperform national trends and attract sustained investment.
The University of Texas at Austin remains a foundational
driver of research, innovation, and education in the region. The Dell Medical
School and UT's continued focus on biomedical research have catalyzed the
growth of Austin's health and life sciences sector. Significant recent
developments include the new UT Austin Medical Center, a $2.5 billion project
in collaboration with MD Anderson Cancer Center, which broke ground in 2024 and
is expected to significantly expand the region's clinical and research
capabilities upon completion in 2029. Other ongoing expansions include
Ascension Seton's continued investment in its central campus, which includes a
$280 million investment to expand and revamp Dell Seton Medical Center, as well
as a $320 million project to construct a new women's health tower on its
campus. Additionally, Baylor Scott & White is expanding its footprint in
the suburbs.
The market is facing some setbacks as the Austin Convention
Center is being demolished to undergo full redevelopment. The $1.6 billion
expansion and modernization will nearly double its total square footage,
enhancing the city's ability to attract large-scale events and conventions. Demolition
began in April 2025, and the new convention center is expected to be completed
by 2029. Currently, the city is working to utilize the larger group hotels to
host some of the events that need to be relocated. In the long term, this
project, combined with the city's walkable downtown, vibrant music and culinary
scenes, and the expansion of Austin-Bergstrom International Airport's terminal
(also projected to be completed in 2029), will strengthen Austin's position as
a competitive meeting and events destination.
Year-to-Date Trends: According to CoStar, over the
past twelve months, the Austin market has experienced softer occupancy and ADR
performance, largely due to the addition of new supply throughout the last
year, primarily in middle-tier hotel-class properties. Overall, RevPAR declined
by 5.2% through May, with occupancy decreasing by 3.8 percentage points. May's
performance showed that corporate demand and weekday occupancy trended slightly
stronger compared to the previous month, due to return-to-office policies and
the state's legislative session, which lasted over 140 days. Group and
convention business declined, which was to be expected with the closure of the
convention center, and weekend occupancy also noted a decline given the new
supply.
Source: CoStar
New
Supply: Over the past
12 months, approximately 2,000 new hotel rooms have opened in the greater
Austin area, adding about 3.9% of the existing room supply. The current pipeline
of hotels under construction ranks Austin among the top 20 largest 110 MSAs in
the United States and exceeds the national percentage of rooms under
construction inventory. Austin's CBD has seen the most room for growth over the
past few years and currently represents approximately 41% of the new
under-construction inventory. One highly anticipated opening is the 1 Hotel
Austin, which is expected to open in 2026. Furthermore, an Autograph Collection
Austin Downtown is expected to open in January 2027; these additions reflect
ongoing developer interest in high-performing submarkets and lifestyle-driven
travel demand.
Transactions:
Over the past 12
months through May, Austin recorded 21 hotel trades, reflecting an active but
nuanced investment environment. Sales were primarily concentrated in mid-tier
properties, with most activity occurring in the northern US-290/I-35 and South
Austin/Airport submarkets. These two areas accounted for the majority of
trades—approximately 1,000 rooms across eleven properties—at an estimated
average sale price of $30 million, or roughly $ 30,000 per key. While investor
interest remains steady, capital market volatility and the higher interest rate
environment continue to temper overall deal volume. Notable Central Business
District trades include a 159-room hotel at 400 Lavaca, sold for $62.4 million
($392,546/key) in December 2024, and the 21-room Cambria Hotel Austin Downtown,
sold in August (price undisclosed). Texas's status as a non-disclosure state
limits the availability of comprehensive sales data.
Despite some
short-term headwinds—including new hotel supply and the temporary disruption
from the Austin Convention Center redevelopment—Austin's long-term outlook
remains highly favorable for hotel investors. The city's diverse economic
drivers, expanding life sciences and healthcare sectors, and population growth
continue to support sustained demand. Major infrastructure projects, from the
convention center to airport expansions, are poised to elevate Austin's profile
as a premier business and leisure destination. For investors focused on
strategic, mid- to long-term opportunities, Austin offers a dynamic and
resilient hospitality market with compelling upside.
