On the Border: A Look at the Lodging Industry in Hidalgo County, Texas

By Kathleen Donahue

October 5, 2010

The Hollywood Western’s presentation of a Texas/Mexico border town conjures images of tumbleweeds, stands of cacti, and swirls of dust down abandoned avenues. Nothing could be further from the truth in Hidalgo County, which houses several energetic border cities in southern Texas’ Rio Grande Valley.

Economy on the Border 

Commercial, leisure, and convention activity contribute to a diverse economy in McAllen, Edinburg, Mission, and Weslaco. The McAllen-Edinburg-Mission MSA was once characterized by its agricultural production. Today, the area, like many others along the border, facilitates high levels of international manufacturing and trade. With a variety of industries including leisure and hospitality, education, health services, and commercial construction, employment in this region has not seen the severe declines suffered in many other markets across the nation. In July of 2010, Forbes ranked the McAllen-Edinburg-Mission MSA seventh in a list of "America’s Best Bang for the Buck" cities, based on indicators including unemployment, job creation, and home prices.

The University of Texas-Pan American in Edinburg, Texas and La Universidad Autónoma De Tamaulipas (UAT) of Mexico have a standing collaboration agreement covering areas of mutual interest and benefit to both institutions. Faculty and staff of the partner institutions participate in teaching and research activities and professional development; receive undergraduate and graduate students of the partner institution for periods of study and research; organize symposia, conferences, short courses and meetings on research issues; carry out joint research and continuing education programs; and exchange information pertaining to developments in teaching, student development, and research.

Transportation routes are key to the economies of border towns, which rely heavily on commuter travel as well as high levels of shipping and distribution. A high percentage of all trade between Mexico and the United States continues to make its way through South Texas' ports of entry. Centrally located within one of the largest trade corridors in the world, Edinburg is also the gateway to U.S. Highway 281, which is being transformed into Interstate 69, also known as the NAFTA Highway.

The economic makeup and travel trends of the McAllen-Edinburg-Mission MSA reflects that of other Texas border towns like Brownsville and El Paso, with maquiladoras operations composing the bulk of business activity. Maquiladoras, foreign-owned manufacturing facilities that process components into finished products for export to other countries, established a strong presence in the Rio Grande Valley in the early 1990s, following the ratification of the North American Free Trade Agreement (NAFTA). The maquiladoras located across the border in Rio Bravo produce a wide assortment of goods, from textiles to automotive parts. The MSA’s proximity to the border and the continued integration of the maquiladora operations continues to drive the local economies and promote growth.

Hotel Supply

The largest hotel in McAllen is the 262-room Embassy Suites. The lodging landscape otherwise predominantly consists of smaller limited- and select-service hotels that serve the needs of leisure travelers and medical tourists to and from Mexico, as well as visitors associated with the maquiladoras. Most hotels along the border in Hidalgo County operate under brands from Marriott, Hilton, Choice, and others, though a number of independent hotels are present as well. La Copa Inn is a brand and ownership entity gaining exposure in the region, with seven properties in operation and another two La Copa Inns set to open soon in Harlingen and Brownsville.

Demand Trends

The most important aspects of a competitive hotel in a border town are visibility, highway/interstate access, and proximity to restaurants and shopping centers. La Plaza Mall and Rio Grande Valley Premium Outlets, two of the most significant shopping venues in the region, attract a large number of Mexican nationals who come to the U.S. to purchase a wide variety of goods. Local hoteliers report that this retail-related leisure demand accounts for a significant amount of room nights, particularly at lower-priced limited-service properties and independent hotels and motels.

The factory-type maquiladora operations create demand for area hotels stemming from repair and maintenance work, corporate visits, and activity related to the buying and selling of the goods produced. Corporate travelers tend to look for branded hotels that offer full-service amenities such as meeting space, dining facilities, and free Internet access. Other more price-sensitive travelers associated with the maquiladoras frequent many of the area’s independent hotels, which generally offer lower rates.

Edinburg Regional Medical Center includes a four-story Patient Tower, which is licensed to operate 167 beds on floors designated for medical, telemetry, pediatric care, and surgical procedures. The hospital campus includes a Diagnostic Imaging Department as well as a Support Services Center and medical offices in Edinburg Regional Medical Plaza I. The center generates demand for area hotels through friends and relatives of patients receiving treatment, medical salespeople, and visiting physicians and administrators. Medical tourism, especially for relatively routine procedures that are far less expensive in Mexico than the U.S., also generates demand for border town hotels.

Meeting and group demand came onto the scene in McAllen with the opening of the McAllen Convention Center in 2007. While much of the convention-related demand gravitates toward larger full-service hotels like the Embassy Suites, limited-service hotels in the area accommodate some spillover demand during larger events.

Lodging trends in this area have been relatively stable over the past five years, with a marked decline in occupancy in 2009 corresponding to the onset of the H1N1 pandemic. Violence associated with the drug trade in Mexico and across the border has also had a negative effect on demand levels, though abatement efforts continue on both fronts. 

Conclusion 

With a diverse mosaic of economic drivers and demand generators for hotels, McAllen and other cities along the south Texas border belie the stereotypical image of a dormant border town. Limited-service hotels especially benefit from the influx of visitors from Mexico who frequent shopping venues in the U.S., as well as the vigorous demand generated by the many maquiladora operations. Neither of these dynamics have suffered major negative impacts from the recent national recession, and as the economy continues to improve, the potential for well-run, well-positioned limited-service hotels along the border looks strong.