HVS Market Pulse: Baytown, TX

Billions of development dollars are at work in Baytown, Texas, including the massive Cedar Crossing Industrial Park, the largest on the Gulf Coast and the fifth largest in the world. As the energy market recovers, Baytown hotels stand to benefit.
Austin LaPoten
More than 500 years ago, Álvar Núñez Cabeza de Vaca, the famous Spanish explorer, shipwrecked on Texas’s Galveston Island. De Vaca’s subsequent trek across the area’s marshes most likely took him through what is now Baytown, which was founded through the forging of three separate cities in 1948. Today, Baytown is one of the most important oil and gas centers in the U.S., as reflected in its motto: Where water and oil really do mix.   
 
 
The following article gives a brief overview of Baytown’s economic drivers, hotel demand generators, and the recent dynamics of the local lodging market. 

The Oil Industry in Baytown

In 1919, the Humble Oil and Refining Company built the Baytown Refinery, which is currently owned and operated by ExxonMobil. The refinery is part of the largest integrated refining and petrochemical complex in the United States. 
 
When the refinery first opened in 1920, it processed roughly 10,000 barrels per day of crude oil. Today, the ExxonMobil Baytown complex has the capability to process up to 584,000 barrels per day.[1] The Baytown plant is currently undergoing ExxonMobil’s first major U.S chemical expansion since 2001. The $6-billion project, which will create 350 direct jobs and lead to the production of 1.5 million tons of ethylene, is slated for completion in 2017.
 
Baytown is also home to the Chevron Phillips Chemical Cedar Bayou facility. The facility is located on 1,800 acres, with 33% devoted to petrochemical manufacturing.[2] The plant’s expansion will reportedly expand the facility’s normal alpha olefin (NAO) production by at least 20%. The $6.5-billion expansion, which began in April 2016, is scheduled for completion by mid-year 2017. 

Economic Outlook

Despite the decline of the global oil and gas market over the past several years, which has resulted in a slight increase in unemployment throughout the area, Baytown continues to prosper, with growth underway in the residential and support-services sectors in the immediate area.
 
According to the September 2016 CDS Market Research Baytown Analysis and Update, 22,000 skilled construction jobs are projected to be created in Baytown over the next five years. Furthermore, in 2016, IKEA announced plans to lease one million square feet of distribution space at the nearby Cedar Crossing Industrial Park. The area’s distribution, shipping, and transportation industries, which are the prime drivers of the local Baytown economy, benefit from a proximate infrastructural network that includes Interstate 10 and the Port of Houston.

Leisure Demand Generators

The San Jacinto Mall was purchased by an affiliated acquisition partnership of Houston-based Fidelis in July 2016, and a $110-million redevelopment of the property has already begun. The plan for the mall, which was in decline and only 70% occupied as of July 2015, includes a one-million-square-foot open-air center on the property. 
 
The initial demolition phase began on April 28, 2016. According to B.J. Simon of the Baytown-West Chambers County Economic Development Foundation, a preliminary study estimated the regional economic impact related to the construction of the mall project to be from $70 million to $210 million, resulting in the creation of up to 845 direct jobs and up to almost 1,000 indirect jobs.[3] The City offered over $22 million in cash incentives and sales tax rebates, plus a ten-year tax abatement, if Fidelis can open the revamped mall by 2020 and create $50 million in property value.[4]
 
Mr. Simon also noted that Super Bowl LI, which will take place on February 5, 2017, at NRG Stadium in Houston, should further boost leisure demand in the area, reaching as far as Baytown. 
Impact on Baytown Hotel Industry
 
Despite the decline of the global oil and gas market in late 2014, limited-service hotels in Baytown reportedly did not experience a noticeable decline in hotel occupancy and RevPAR until 2016. The primary reason behind the downward trend was attributed to the reliance on turnover business from work at the nearby petrochemical facilities, which subsided in 2016. However, the billions of dollars in petrochemical projects, along with the aforementioned projects, should lead to a reversal of this negative trend, as growth is expected in 2017 and beyond. 

Conclusion

The overall outlook, including prospects for leisure demand for area hotels, remains bright for Baytown. Local hotels will benefit from demand compression from the February 2017 Super Bowl in Houston, while major projects in the petrochemical industry and the redevelopment of the former San Jacinto Mall should support expanded economic growth in and around the city over the long term.

 


[1] "Baytown." ExxonMobil's Careers. N.p., n.d. Web. 16 Jan. 2017.
[2] Chevron Phillips Chemical Company, Corporate Communications. "Baytown." Baytown. N.p., n.d. Web. 16 Jan. 2017.
[3] Aubespin, Eleska. "San Jacinto Mall Sale Final, Major Makeover next." The Vindicator. The Vindicator, 16 July 2015. Web. 16 Jan. 2017.
[4] Collette, Mark, and Erin Mulvaney. "Booming Baytown Props up Houston's Economy, for Now." Houston Chronicle. Houston Chronicle, 12 Mar. 2016. Web. 16 Jan. 2017.
Austin LaPoten, Project Manager with HVS Houston, graduated from college as one of the top hospitality students internationally. Austin’s prior experience in hotels and hospitality includes working at the Atlantis, The Palm resort hotel in Dubai, where he helped research and create concept statements in preparation for future hotel openings, including plans for all facilities and amenities. Austin earned a BS in Hospitality Management from Florida International University’s Chaplin School of Hospitality & Tourism Management. He also holds a diploma in German and European Union Studies from the University of Edinburgh. Contact Austin at (267) 640-9781 or alapoten@hvs.com.

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