Why investors keep coming back to Texas

NATIONAL REPORT — A challenging RevPAR environment for the top four cities in Texas hasn’t kept hotel investors away from the Lone Star State. In fact, the opposite is true.

“Institutional full-service will continue to be extremely attractive for investors in Texas, really, across the four major cities,” said Brian Nordahl, executive vice president for CBRE Hotels, who is based in Dallas and specializes in institutional investment in Texas and the South Central U.S. “It’s really these national level uncertainties that are impacting the markets, and once we get some clarity on that, I absolutely anticipate that Texas will continue to be the number one place that people are going to look for a hotel investment.”

Brian Nordahl

According to data from CoStar, the top five markets in Texas (which includes Austin, Houston, San Antonio and Dallas as well as Fort Worth-Arlington in DFW market) are seeing negative RevPAR performance through the first three quarters of 2025: Austin is down 6.3% year-over-year, Dallas is down 1.5%, Fort Worth/Arlington is down 0.8%, Houston is down 9.6% and San Antonio is down 3.6%.

Add to that a challenging environment where both the Austin and Dallas markets have closed their convention centers for renovations for the next few years (Austin’s convention center closed in April for a $1.6 billion development with demolition complete and construction underway for a new larger facility while Dallas’ Kay Bailey Hutchinson Convention Center isn’t fully closed but is undergoing a major $3.7 billion renovation/redevelopment that has limited its ability to host events). Both convention centers are scheduled to reopen in 2029.

So why are investors still showing a belief in Texas? Colin Sherman, director of hospitality market analytics, Texas & U.S. South for CoStar, said history is driving their decisions.

“From what I can gather, particularly in the Texas landscape, they're looking at the historical fundamentals of hotel investment,” Sherman said. “Yes, this year is down… But in the long run, they see that there's an opportunity and they continue to maintain that optimism.”

Those strong fundamentals are also showing up in Texas hotel sales data for 2025, Sherman said.  

“If we're not even looking at development, but just sales in general, we've seen an uptick in sales this year across the five major metros that STR follows,” he said. “We're starting to see investments come back.”

Through November across those five markets, Sherman said STR data shows that 18,570 rooms have changed hands, up a whopping 45% from 12,794 rooms through the same period last year.

DFW continues to be the number one location for investors nationwide. It's the number one market where people want to be, no matter what's happening with the convention center.

Brian Nordahl

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“It's gone up quite a bit and that's a good indicator that investors are still willing to buy and buyers are looking for deals,” he said. “They're hedging their bets, basically, that everything is going to be back and it's still a good investment, considering the growth and the population that's coming to all major metros around Texas.”

The strongest hotel investment market in Texas also has the nation’s strongest hotel pipeline for the past two years, Nordahl said — Dallas-Fort Worth.

“DFW continues to be the number one location for investors nationwide,” Nordahl said. “It's the number one market where people want to be, no matter what's happening with the convention center.”

If anything, Nordahl said, investors look at the buildup to a new convention center in 2029 as a positive.

“Because when you [acquire] them, a lot of these hotels need to be renovated. So you do your renovation over 24 months, and then you're ready to rock and roll when those convention centers come back online, there's significant citywide demand and the hotels will benefit greatly,” he said. “Most of these investors are underwriting five to 10-year return horizons, so it falls well within those horizons to have new convention centers.”

Challenges for Texas markets

Each of the top four cities is facing unique challenges.

In Austin, the city is facing RevPAR headwinds, especially in the last two quarters (Q2 RevPAR was down 14.3% YOY, and Q3 was off 6.3%), and is focusing on what it calls a “mini-wide” concept to host events (namely, SXSW) while its convention center is closed.

Colin Sherman

“They’re turning their downtown into a campus-style, convention center, where they're using all the available meeting spaces around different hotels to fill that gap,” Sherman said.

While the city has long been known as a luxury market, developers have recently been working to fill the middle-tier hotel gap, according to Sherman.

“That middle-tier traveler is what they're trying to appeal to now, and developers are trying to fill that gap throughout the Austin area, not just in downtown, but also in some of the peripheral submarkets,” he said.

The RevPAR challenges are less apparent in Dallas-Fort Worth, which has the two best-performing major markets in Texas. The Dallas market, in particular, has a lot of new supply coming in, particularly on the luxury side. Those luxury hotels are unique, Sherman said, because they are often anchoring mixed-use developments around the city (while it’s more typical for the hotels to come in later in the development process).

Dallas' redeveloped and expanded convention center is scheduled to open in 2029. (Credit: Dallas Convention Center)

The Arlington-Fort Worth market has benefited from steady demand and new supply and is especially buoyed by all the sports demand created in Arlington with the NFL, baseball and special events, notably next year’s World Cup, when Arlington will host nine matches at AT&T Stadium, the most of any host city.

Nordahl said several submarkets in DFW aside from Arlington will benefit from the event, including Frisco, as well as hotels around DFW Airport.

“We've heard advanced bookings that are extremely strong at individual hotels,” he said. “[Next year] should be a great year in particular and a great summer for DFW as a whole,” he said.

Houston’s RevPAR headwinds are more notable, but mainly because of challenging comps due to 2024 hurricane (RevPAR was down 25.1% YOY in Q3). Sherman said that, with little new supply entering the market, the investment focus has shifted away from the city’s urban core.

We've heard advanced bookings that are extremely strong at individual hotels. [Next year] should be a great year in particular and a great summer for DFW as a whole.

Brian Nordahl

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“From an investor standpoint, we're seeing those peripheral submarkets being filled more on the entertainment side and a little bit further outside of downtown,” he said.

San Antonio has also seen RevPAR headwinds this year (Q1 was down 3.7% — the only major market to be down in the first quarter; Q2 was down 3.3%; and Q3 was down 3.4%) due to steady supply growth offset by lower demand. But Sherman said there’s a lot to look forward to in the market with several upper-tier hotels opening in the downtown area over the past year.

“A lot of supply has entered the market, particularly on that luxury scale,” he said. “A lot is going on down there, and it's being driven by new projects that the city and independent developers are bringing to the city,” he said, noting the significance of Project Marvel, an ambitious, multi-billion downtown revitalization plan.

Speaking to investor interest is all of the potential future demand for business in these markets, especially when the Austin and Dallas convention centers fully come back online. Those citywide events create compression, Nordahl said, which can spread the benefits to hotels around the city.

“The big word that matters is compression… even if your hotel is not benefiting directly from convention center demand, the fact that there's a major event citywide or even a large group creates that compression in the market that allows various hotels that might benefit from getting better occupancy and better average daily rate,” he said.