New York’s red-hot hotel industry is beginning to fear a slowdown. Though most business metrics are positive, rising inventory and fear of a recession are beginning to push many hoteliers to develop plans for a weaker environment.
Even Sam Chang, the most prolific hotelier in the city, is tapping the brakes. Last month, Crain’s New York Business reported that Chang’s primary lender, Credit Suisse, was pulling back. The publication quoted Chang, who is building 40 percent of the 10,000 rooms coming online in the city, as saying that the credit crunch is slowing him down and that he is “playing defense trying to finish what we have in the pipeline.”
To be fair, many existing city hotels are reporting healthy business this year so far.
Adele Gutman, vice president of sales and marketing for HK Hotels, which operates the Library, the Casablanca, Hotel Giraffe and Hotel Elysee, said the company has seen year-to-date increases in revenue per room at its city hotels ranging from 10 to 20 percent. She credits that to “very strong
loyalty and robust sales from the international leisure market.”
However, “as a preemptive strike, we are beginning to send out e-mail campaigns and a series of search-engine-optimized press releases for packages at our hotels, something we have not needed to do in a while,” said Gutman. The purpose is “to get the names of our hotels out into the marketplace a bit more, so that if demand for New York City dips at all, we will have already laid the foundation to boost our market share,” she said.
Smith Travel Research expects demand to fall slightly in the U.S. as a whole in 2008 and 2009.
Still, hotel industry experts expect Manhattan to fare better than the rest of the nation, thanks in large part to international tourism. In February, the most recent month for which stats were available, demand for hotel rooms was up 4 percent.
But the numbers to date for this year are down compared with October 2007, when demand was up 5.9 percent.
Occupancy rates, while still quite high relative to those of other cities, have also taken a hit. Throughout much of last year, percentages were up in the high 80s, but in 2008 have dropped back to 73.9 percent year-to-date through February, according to Smith Travel stats.
Since January and February are traditionally the two slowest months of the year, New York hoteliers are waiting to see if the seasonal dip will correct itself, or if it’s a
precursor of something worse.
Meanwhile, sluggishness is starting to show up in results for Denihan Hospitality Group, which has hotels in Chicago, New York and Washington, D.C.
New York remains strong, but booking patterns for tourist travel have narrowed to a three-week window from five weeks a year ago at this time, according to Denihan’s chief marketing officer, John Moser.
He said business travel is holding up
well, but acknowledged that the growth might not achieve the double-digit rates the company had expected. Moser emphasized that the company has not yet started cutbacks, but it has measures, such as delaying the filling of open staff positions, ready if volume declines.
“We, like a lot of hotel companies, have plans in case, to make appropriate cutbacks,” Moser said. “We’ve always had them, but definitely dusted them off at the beginning of this year when we saw some economic indicators were not as strong.”
One sign of trouble is that business travelers, who make up an estimated 60 percent of the client base for Manhattan hotels, are trading down to less expensive rooms or taking shorter trips, said Bjorn Hanson, hotel consultant for PricewaterhouseCoopers.
Another yellow light is that hoteliers can no longer raise rates as much as they have previously, a sharp contrast from the past four years of gangbuster growth.
In March, PKF Hospitality Research slashed its 2008 national forecast for
revenue per available room, a key measure of hotel sector health, to a below-average growth rate of 3 percent from an increase of 4.5 percent because Moody’s Economy.com forecasts a recession this year.
The price increases per room for New York hotels totaled 6 percent in March compared to a year prior, down from the 9.2 percent average increases for January and February, according to data from PKF.
Six percent might not sound measly, but it contrasts sharply with the whopping 51.2 percent cumulative gain in average daily rates for all hotels in Manhattan over the last three years, according to PricewaterhouseCoopers.
Finally, there’s a new wave of concern that the local hotel building boom could result in too many rooms. As of February 2008, the number of New York hotels was up 11 percent from 2003, with total rooms up 3.9 percent to 82,696. There are another 8,928 rooms under construction now, with 15,000 more in various stages of planning.
“One of the things we need to keep an eye on is supply growth,” said Duane Vinson, vice president of content management for Smith Travel.