Crain’s New York Business: Tourism picks up, but hotels are still in trouble
By Natalie Sachmechi
Mach 30, 2021
Just over a year after city tourism came to a screeching halt, hotels are filling up—at least the ones that are still open.
Occupancy rates at the city’s inns surged to more than 65% by March 20, according to analytics firm STR. While that’s a far cry from the 87% they reported during the same period in 2019, it’s major jump from the 17% they reported 12 months ago.
Even so, more than 200 hotels in the city remain closed, and profitability remains a long way off, said Vijay Dandapani, chief executive of the Hotel Association of New York City.
“It is partially good news in that it shows people are looking to come back to NYC,” he said. “Once the [domestic travel] quarantine is lifted on April 1st, there may be a slightly higher uptick.”
With more vaccines being doled out, people are more comfortable traveling and the good weather is a bonus, added Jan Freitag, the national director of hospitality market analytics at CoStar Group, which owns STR.
“It starts to feel just a little more normal compared to what it used to be,” he said. “New York City lives off tourists and those are the ones that are fueling the occupancy.”
But occupancy rates are still far below pre-pandemic levels, Dandapani said, while operating costs such as labor and property taxes remain the same and hotels continue to lose money.
The hotel industry and several City Council members recently implored Mayor Bill de Blasio to reduce the industry’s heavy tax burden by waiving the hefty 18% fee on late property tax payments. Nothing came of it.
The 65% figure, however, doesn’t tell the whole story. That number represents only those hotels that are open and operating, not all the hotels in the city.
If the shuttered hotels were included in the headcount, rates would be much lower, Freitag said—41% to be exact.
Across the city, economy hotels that offer lower prices and fewer amenities performed the best; their occupancy rate hit more than 60% for the week ending March 20, STR’s data shows. Luxury hotels reported half that number.
Dandapani expects that a third of all the city’s hotels could close permanently because of the pandemic.
Where those die, new ones will blossom, Freitag said.
“I always like to say that permanently closed hotels are closed until they’re not,” he said. “Yes, the existing owner may not be able to make this hotel work, but that doesn’t mean that a different owner that can pay the bank off” can’t make it work.
A number of hotels have already fallen into foreclosure, including the Andaz in the Financial District. A seven-hotel portfolio recently acquired by Mack Real Estate Group for $316 million is at auction.
But developers are moving forward on new hotel projects in the city, including a Moxy Hotel in Williamsburg and another on the Lower East Side that will open by the end of the year. A Margaritaville Resort in Times Square is expected to open later in the spring.