By HARVEY CHIPKIN
April 2, 2024, 9:15 AM
A new wave of laws and social issues is creating a hospitality landscape in New York City that is different from any other major market.
The factors include legislation that severely tightens restrictions on short-term rentals, zoning changes that hamper hotel development and a migrant crisis that has taken thousands of rooms off the market. The latest change is the first congestion pricing plan in the country that is set to impose fees for those driving into Manhattan south of 60th Street.
Meanwhile, and perhaps partly because of these factors, the New York City’s hotels are doing well. Zach Demuth, global head of hotels research for JLL, said the market continues to see strong demand. NYC’s hotel occupancy is inching toward a full post-pandemic recovery driven by the return of international travel — mainly from Europe, but with some demand trickling in from China — as well as persistent strength in domestic leisure and business travel.
New York City expects to see strengthening group travel over the coming months, Demuth said. This will likely benefit hotels in the immediate vicinity of Jacob Javits Center as well as those in neighboring submarkets and possibly New Jersey, given the broader lodging supply constraints stemming from migrant shelters and lack of short-term rental listings.
Brian McSherry, chief operating officer for M&R Hotel Management — which has 17 hotels in the greater New York area — said rates at the company’s properties were in the first quarter were about $50 higher than in recent years. He added 2023 was “a great year,” and 2024 “is looking even better,” driven by leisure business.
Restrictions on Short-Term Rentals
With the passage of the Short-Term Rental Registration Law, which went into effect in New York in September, significant restrictions were imposed on Airbnb and similar alternative-accommodations platforms. According to the city’s official website, short-term rental hosts must register with the mayor’s Office of Special Enforcement “and prohibits booking service platforms (such as Airbnb, VRBO, Booking.com, and others) from processing transactions for unregistered short-term rentals.”
Demuth said there were around 30,000 short-term rentals citywide on average before the law took effect, and JLL projected that number would go down to 10,000.
However, the total number of short-term rentals is approximately 15,000, he said. This is because there were more legitimate registrations than expected, including in older buildings that have been converted into short-term rental properties — some as whole buildings but mostly floors or portions of apartment buildings. Still, the decrease in inventory is proving to be a boon for hotels, Demuth added.
Could some short-term rentals still be operating in New York illegally? Demuth said that is hard to quantify. Meanwhile, there are early indications that the law has had some effect on vacation communities such as the Hamptons on Long Island.
It’s hard to generalize about the situation outside the city because there are so many listings, and lodging performance is a town-by-town situation, Demuth said. And roughly 16,000 rooms have been taken offline to house migrants — a large chunk of that total is in the historic Roosevelt Hotel, with about a thousand rooms.
Daniel Lesser, co-founder, president and CEO of LW Hospitality Advisors, a consultancy in New York, said it’s hard to draw a direct line from the short-term rental situation to hotel demand, but there is no question the market is “rebounding very nicely.” For existing hotel owners, the forces at play can add up to a great opportunity. However, Lesser said there is an argument to be made that the city needs more hotel rooms or eventually demand will suffer due to high costs and limited inventory.
The restrictions on Airbnb have been significant in M&R Hospitality Management’s hotels capturing higher rates, McSherry said. He added the restrictions have been a net positive because short-term rental operators do not have to comply with many of the municipal regulations that hotels do.
Vijay Dandapani, CEO of the Hotel Association of New York City, said that Airbnb has been “spreading the canard” that the short-term rental law is driving higher rates. The actual reason, he said, is the inventory being used by migrants.
Despite all that, Dandapani doesn’t believe these are historically the best days for New York hotels. When adjusted for inflation, hotel rate and RevPAR overall are below 2019 levels, and no month in 2023 exceed occupancy levels recorded in the same period of 2019.
Dandapani added it’s still too early to determine the impact of the short-term rental rules. He added that as of early this year, not a single illegal rental has been fined, although he has observed a substantial drop in listings on major sites such as Airbnb.
Tiffany Townsend, executive vice president of global communications at New York City Tourism + Conventions — the city’s official tourism office — agreed that it’s still too early to tell what the impact of the short-term rental legislation will be, since a grace period of existing reservations ran through December. She added that short-term rentals account for less than 10% of the overall marketplace for accommodations in New York City.
Townsend said the current active hotel inventory is roughly 121,000 rooms, with about 10,000 new rooms planned in the next two to three years, but development is slowing.
New York City’s hotel zoning laws changed dramatically in 2022, and getting approval now involves meeting rigorous requirements, Demuth said. As a result, over the next three years supply is expected to grow only about 1% — rather than the 6% to 7% over the last decade.
McSherry added his company is not building any more hotels in the city because “it’s too difficult and too onerous to do it.”
Congestion Pricing Questions
Looming in the months ahead is the issue of congestion pricing, slated to go into effect this spring in New York City. On March 27, the city’s Metropolitan Transportation Authority Board approved the congestion pricing rates almost unanimously. The tolls range from $15 for cars up to $36 for trucks, and the MTA could begin collecting tolls as early as June 15.
Lesser said he’s not sure implementation is a done deal because there are so many lawsuits seeking to stop it from happening. “It’s just another form of taxation,” he added.
However, it’s unlikely that many people staying in hotels drive into the city, Lesser said. If they’re coming from the airports, typically visitors to the Big Apple use Uber and taxis.
Dandapani said the fees will simply be another expense for hotels to pass onto consumers, but they will probably have more of an impact on restaurants and theaters. Most hotel employees live in the city, and many take mass transit. Managers, however, tend to live outside the city and drive in.
Dandapani added he doesn’t expect travelers stay in another borough such as Queens or Brooklyn to avoid congestion pricing. Visitors who want to see Manhattan stay in Manhattan, he said.
Congestion pricing shouldn’t impact M&R Hospitality Management’s properties significantly, McSherry said. His company’s portfolio includes eight hotels in the congestion pricing area, but there will be costs — including commercial deliveries — that will be passed on to guests. He agreed that the real impact will be less on hotels and more on dining and entertainment venues. Also, some parking garages might go out of business, and his hotels have relationships with some of those garages.
There might be an impact on some executive-level meetings, where participants driving across the George Washington Bridge must deal with $17 toll, parking for at least $30 and the congestion fee of about $15, McSherry said.
“It’s more than $60 before you sit down to meet,” he said.
Most of McSherry’s employees use mass transit. He said his company has a corporate office in Manhattan, which was recently negotiated for a lower rent. However, with congestion pricing, the company might give up that office for one in the suburbs.
Townsend said it’s too soon to tell, as the congestion pricing policy hasn’t gone into effect.
“We have always encouraged travelers to enter and navigate the city via mass transit, given the many modes of transportation and connectivity across the five boroughs,” she said.