Manhattan’s hotel market emerges from
3-year slump

RevPAR turned positive in 2018 as hotel operators flexed pricing power: STR

TRD New York /
Jan.January 21, 2019 02:00 PM

A rendering of Edition Times Square at 20 Times Square, Chelsea Hotel at 222 West 23rd Street, TWA terminal hotel at JFK (Credit: PBDW Architects, Wikipedia, and TWA Hotel)

Manhattan’s hotel market, which for the past several years has been weighed down by a flood of new rooms, turned a corner in 2018.

Revenue per available room – or RevPAR, one of the key metrics used to assess the hotel market’s health – saw positive momentum in 2018 for the first time in three years, according to figures from the hotel-data firm STR.

RevPAR grew by 3.4 percent in 2018 from the year earlier to just shy of $229, according to STR’s figures. That ends a three-year slide that started when RevPAR started declining off the peak of roughly $232 in revenue per available room in 2014.

For the past few years, the hotel market has struggled as thousands of new rooms – particularly those in select-service hotels in neighborhoods like the Garment District and Chelsea – have come online.

The new supply weakened fundamentals, and put a chill on hotel investment-sales.

But hotel operators long had a light at the end of the tunnel: Even though more and more rooms were opening their doors, more than enough visitors were coming to the city to fill them.

Occupancy rates remained stable in the high 80-percent area as the supply grew. The problem, from a RevPAR perspective, was that hotel operators had to lower room rates in order to cope with the new competition.

Many in the hotel sector believed that once Manhattan got a handle on all the new rooms and they were adequately absorbed, hoteliers could start pushing room rates upward, and RevPAR would turn a corner.

Indeed, average daily room rates grew year over year in 11 out of 12 months in 2018, ending up growing 2.7 percent from the previous year at more than $262 per room.

Since 2015, Manhattan has seen 70 new hotels open, according to NYC & Company, the city’s tourism-marketing partner. There are an additional 52 projects in the pipeline, including the Edition in Times Square, the Chelsea Hotel and the conversion of the Eero Saarinen-designed TWA terminal at JFK Airport. But now, hotel development may be constrained thanks to a recent zoning amendment that requires special permits for the construction of hotels in most light manufacturing (M1) zoning districts. The move has halved the amount of land where hotel developers can build as-of-right.

Other segments of the commercial real estate market are showing signs of a second wind, even as the broader U.S. economy approaches its tenth year of expansion and many feel the next recession is not far off.

New York City’s investment sales market snapped a two-year decline last year, climbing 35 percent to nearly $50 billion. And Manhattan’s office-leasing sector recorded 32.4 million square feet worth of deals last year, its best showing since 2000.

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