Here’s why NYC hotel room rates are really struggling right now

By one measure, profits were down 23% last year

TRD New York /
Jul.July 10, 2017 03:00 PM

President and CEO of the Hotel Association of New York City Vijay Dandapani and Midtown Manhattan (Credit: Dimitry B. via Flickr)

New York City’s average hotel room rates slid 11 percent over the past three years as the city’s grappled with an influx of new supply and increasing competition from short-term rental platforms like Airbnb. And by one measure, profits were down roughly 23 percent last year.

The average nightly room rate was $224 during the first quarter, down 11 percent from the average of $252 per night in the first quarter of 2014, the New York Post reported.

Hotel profits also declined 23.1 percent in 2016, according to Sean Hennessey, president of the hotel-consulting company Lodging Advisors and a hospitality professor at NYU.

“That’s a staggering number,” said Hennessey, who added hoteliers are cutting back on services in order to cope.

“Hotels are cutting back wherever they can to stop the bleeding,” he said, “eliminating turn down service, skimping on maintenance projects and approaching the city to about reducing their property taxes arguing that they are no longer as profitable.”

The culprit, in part, is a flood of new rooms developers have built. The number of hotels in the city has grown 55 percent since 2008 to 634 properties and 115,000 rooms, according to the hotel-research firm STR.

As the new hotels come online, owners are more willing to push rates lower in order to keep the properties at higher occupancies. Occupancy rates are in the mid-80 percent range, which is one-third higher than the national average in the mid-60 percent area, according to CBRE.

“We are selling more rooms than we did before and we have a high occupancy rate, so that should give hotels more pricing power,” STR senior vice president Jan Freitag said. “There are a host of potential reasons, but there is not one single answer” why rates are coming down.

There’s also competition from sites like Airbnb, according to Hotel Association of New York City president Vijay Dandapani.

Hotel revenues dipped for the fourth consecutive winter to a record low earlier this year, and experts are projecting that metrics may turn positive for the first time next year. [NYP]Rich Bockmann

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