The Wall Street Journal: U.S.’s Hardest-Hit Hotel Market Primed for a Comeback
By KATE KING
September 19, 2023, 8:00 AM
New York City’s hotel recovery is checking in early.
The pandemic hit New York City harder than any other U.S. lodging market. Tourists stayed away and business travel dried up. Dozens of hotels with thousands of guest rooms closed their doors permanently, more than in any other major market.
Now, several factors are driving room rates above prepandemic levels, including a surge in tourism and demand from the city for rooms to house migrants. New York hotels charged $260 a night on average in August, according to data firm CoStar, roughly 17% more than the same month in 2019. That was New York’s highest rate for the month of August since 2008.
Supply is unlikely to grow significantly in the coming years due to city restrictions on new hotel development.
The city’s new restrictions on Airbnb rentals are also expected to boost business by limiting short-term rental supply. Hotel room revenue could rise by as much as $380 million in 2024, which would help push revenue per available room to levels not seen since the 2008 financial crisis, according to real-estate investment firm JLL.
“When you take everything together, I think the hotel business looks pretty sunny in the near term,” said Richard Born, one of the city’s biggest hotel owners. “Which is pretty good, because we’ve had some pretty dark days in the not-so-distant past.”
While resort markets thrived early on during the pandemic, big U.S. cities waited the longest for tourists to return. Some hotel owners defaulted on their debt. Hotel owners and analysts predicted that the New York market wouldn’t recover until at least 2024.
The recovery, however, appears to be taking off this year. Gross operating profit per available room through the end of July was $84.21, up 8.4% from the same period in 2019, even as occupancy remained about 7% lower than prepandemic, according to hotel-data firm HotStats, which collected data from 83 New York City hotels.
New York City will likely see 63.3 million tourist and business visits this year, not far behind 2019’s record-setting 66.6 million visitors, according to New York City Tourism and Conventions, the city’s official tourism organization. Visits to the city are expected to surpass 2019 levels next year.
“There has been an incredible amount of pent-up leisure demand, both domestically and internationally,” said Justin Arest, owner of Kixby, a boutique hotel in Manhattan’s Herald Square neighborhood.
International travel has been strong, particularly from Western Europe, but hasn’t recovered fully due in large part to the slower return of Chinese tourists.
In Manhattan’s Meatpacking District, the Gansevoort hotel is on track for a 20% revenue boost this year compared with 2019, said owner Michael Achenbaum. The hotel underwent an extensive renovation during the pandemic, which enabled the owner to boost room rates even as occupancy remains a bit behind prepandemic levels.
Corporate bookings are still significantly lower than 2019. But Achenbaum said his hotel, which historically attracted business from tech companies, has seen group travel recover.
“The major tech companies are doing a lot of group travel,” he said. “But they’re not necessarily individually traveling as much.”
Over supply has haunted the New York City hotel market in the past. During the 13 years leading up to the pandemic, 54,000 new hotel rooms opened in the city, diluting hoteliers’ ability to push up room rates.
Now, supply looks to be more constrained. About 7,500 rooms across 49 hotels haven’t reopened since the pandemic, according to the Hotel Association of New York City, a significant number although well below the 25,000 permanent room closures some analysts and owners predicted in 2020.
While the influx of migrants is straining New York City’s budget, it has provided a lifeline to many hotel owners. The city has contracted with well over 100 hotels to house migrants in about 12,000 rooms—about 10% of all available rooms across the five boroughs, according to the hotel association.
These hotels include the 1,300-room Row NYC in Times Square and the world’s tallest
Holiday Inn in the financial district, where the city signed a $34.5 million contract to house migrants through the end of April 2024.
Even after the migrant crisis abates, hotel owners expect supply to remain constrained in the coming years due to increased city enforcement of restrictions on Airbnb and other short-term rental listings. The restrictions prohibit hosts from renting out their entire apartments or homes and require hosts to be present during guests’ stays.
“We were all incredibly nervous about the long-term effect of what Airbnb was going to do to the market,” Achenbaum said. “If Airbnb is limited the way it seems like it’s going to be, there should be a consequential increase in revenue.”
Airbnb and its peers are already feeling squeezed by the new restrictions, according to the short-term-rental analytics company AirDNA. New York City’s short-term rental listings in September were down 77%, to 4,600 listings, compared with the number of listings in June.
The pipeline of new hotels in New York City is also slowing after local lawmakers enacted more stringent approval processes for building or expanding lodging properties. No new hotels have been approved under the new permitting process that took effect in late 2021, according to the New York City Department of City Planning.
With new development sharply curtailed, hotel owners are likely to accelerate raising room rates, said Sean Hennessey, a hotel consultant and associate professor at New York University’s Tisch Center of Hospitality.
“We are in the early stages of significant room rate growth in the city for an extended period of time,” he said.