The Line Austin hotel is seen Friday, May 29, 2026. The downtown property changed hands June 2 after defaulting on a loan, one of two Austin hotels involved in more than $250 million in combined loan defaults.
Jay Janner/Austin American-Statesman
The South by Southwest Conference & Festival wasn’t enough to lift the Austin hotel business early this year. It lagged every other major Texas metro in the first three months of 2026 as occupancy and revenue both declined.
Source Strategies, the San Antonio hotel analytics company that compiled the data for hotels statewide, said demand for rooms in Austin is increasingly depressed by the loss of the Austin Convention Center, which was shut down in April 2025 for a massive demolition and rebuild project.
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That helped push revenue down 5.9% from the same period a year ago — the steepest decline among Texas metros — even with South by Southwest falling in the first quarter. Statewide, revenue was up 2.9%. Houston led major metros with an 8% gain, while Fort Worth was up 3.4% and San Antonio 1.6%. Dallas slipped 2.8%.
Hotel revenue fell in Austin as occupancy slipped more than 3%.
The decline tracks with earlier signs of a softer SXSW hotel boost this year. The festival was shortened from 10 days to seven and included only one weekend. Hotels sold roughly one-fifth fewer rooms during the festival, resulting in about $10.5 million less revenue citywide, according to an analysis by the Austin American-Statesman.
For the January-March period, total revenue for hotels in the Austin metro was $514.12 million, Source Strategies said. While down 3.6% from 2025, it was up nearly 29% from pre-pandemic 2019.
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Occupancy declined 3.3% from a year ago and nearly 19% from 2019. That may partially be a function of steady increases in the metro area room supply. Source Strategies pegged the first-quarter supply at 49,625 rooms, up 2.4% from a year ago and a 27% increase from the first quarter of 2019. Also impacting revenue, average daily rates were down nearly 3%.
Houston leads Texas hotel markets
Among the state’s other major hotel markets, Source Strategies attributed Houston’s industry-leading performance to strong oil and gas activity and major events including the Houston Livestock Show and Rodeo and NCAA Division I Men’s Basketball Championship South Regional.
The gain in Fort Worth-Arlington was driven largely by higher occupancy, which increased 2.6%, while average daily rates remained relatively flat.
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San Antonio’s revenue increase came as the city’s hotels recorded a 2.1% increase in average daily rates.
In Dallas, both occupancy and average daily rates declined during the period.
AI-related construction boosts smaller markets
Outside the state’s biggest metros, some of the state’s strongest hotel demand has been tied to artificial intelligence data center construction. Source Strategies pointed to Abilene, Childress, Snyder and Corsicana as smaller markets where temporary construction workers have boosted demand.
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Texas recently surpassed Virginia as the top data center market in the world. The state is now home to more than 250 data centers and that number could grow to an estimated 750 within the next five years. More than 70 data center projects were operating or in development between Temple and San Antonio as of last month, according to a Statesman tally. At least seven of those are in Hays County and more are being announced every week.
The AI infrastructure boom for hotels will be temporary. Source Strategies noted that data center projects can employ thousands of workers during construction but permanent staffing is much smaller once facilities open.
Looking ahead, Dallas and Houston are expected to benefit from the 2026 FIFA World Cup, with matches scheduled at AT&T Stadium in Arlington and NRG Stadium in Houston. Source Strategies said hotels in those areas are positioned for a short-term boost from international visitors this summer.
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Andrea Guzman and Karoline Leonard contributed to this report.