Rates for Manhattan’s priciest hotels shot up nearly 20 percent in March compared to the year before, even while occupancy declined. The rise points to the strength of rooms priced over $300 a night — a once select group of hotels that now includes everything from the Westin Times Square and Marriott Marquis to super luxury properties such as the Four Seasons and Mandarin Oriental.
Occupancy for hotels with average rack rates of more than $300 a night dropped nearly 7 percent, to 81 percent this March from 88 percent last year, according to data released last month by PKF Consulting. For the entire first quarter, room rates climbed 13 percent compared to last year, while occupancy dropped 3 percent.
The seemingly paradoxical rise in rates while occupancy edged downward — what happened to the supply-demand theory? — perplexes some, but not Nolan Hecht of Cushman & Wakefield’s hospitality transactions group. He sees a deliberate strategy amongst the elite hotel brands to forego occupancy in order to manage overall revenue.
“Luxury operators tell me they’re pushing rate as opposed to occupancy because running a luxury hotel at 90 percent occupancy presents certain difficulties,” Hecht said.
“First, it’s hard to keep up that level of service that ultra luxury guests demand and second, when running a hotel at 90 percent occupancy, the wear and tear on the hotel is greater than at 80 percent.”
Yet for $300-plus room rate hotels the decline in occupancy may go unnoticed. Indeed, hotels continue to book out for vast stretches and first quarter revenues are approaching double-digit gains.
“We’re all giddy because it’s so ridiculous,” said John Fox, a senior vice president at PKF Consulting, which tracks hospitality trends.
The drop in occupancy levels is most likely attributable to upper-end luxury hotels that traditionally run occupancies below market levels, Fox said.
But at the Mandarin Oriental a spokesperson said the hotel had surpassed its occupancy projections for the first quarter, while at the Four Seasons — where rates begin at $795 and cap out at $15,000 for a presidential suite — there was a similarly upbeat report.
“It’s just been the perfect storm for us,” said Brian Honan, marketing director for the Four Seasons, noting that a number of recent high-end hotel closings have only solidified their position.
The latest to close was the 500-room Drake Hotel and before that the Plaza, Stanhope and Mark all converted fully or in part to condos.
Indeed, at the upper end of the spectrum, supply is continuing to contract, said Kirk Reed of PricewaterhouseCoopers’ hospitality practice.
Still, Reed said, there’s gathering momentum on a number of upper upscale boutique and independent properties in the far west Midtown and Downtown areas. Reed says Madison Equities is in discussions with Hyatt on a 550-room hotel at 54th and Seventh Avenue and a 40-story 500-room high-end hotel is in the early stages of development at a site in the West 40s.
Hotelier Andre Balazs and developer Charles Blaichman are moving forward on a deal to convert a five-story former warehouse at the southeast corner of West 14th Street and 10th Avenue in the Meatpacking District to a 10-story high-end boutique hotel and private club. The announcement made in April reversed what was originally to have been a retail and office space complex. Rates at the new hotel will reportedly be higher than those at the neighboring Hotel Gansevoort on Ninth Avenue between 12th and 13th Streets, where room prices start at $405. The change of heart is a nod to the hot hotel market, confirmed Bruce Sinder of commercial brokerage Sinvin Realty, which is representing the developer.
Overall, analysts say any subsequent downward room rate pressures won’t be felt for some time, and in the interim, even big tour and travel hotels such as the Hilton and Marriott chains are reviewing their occupancy-room rate allotments in lieu of higher average room rates.
“As far back as a year ago we were reevaluating our group bookings,” said a Marriott spokesperson.
Indeed, a $459 room rate this past week at the fully-booked Marriott Marquis only reflects these upwards pressures and, perhaps, a reassessment of how to better pad bottom line revenues.
Meanwhile, the most expensive room in the city — the Four Seasons’ $15,000-a-night Presidential Suite — has been booked for the last two weeks.