New York hoteliers are used to collecting accolades for their luxurious rooms and top-chef cuisine, but the economic meltdown is bestowing an unwelcome new distinction on the city: worst-performing hotel market in the United States.
The city earned the title by leading the nation last month in a decline in revenue per available room, or revpar. In the trailing month through April 11, the most recent data available at press time, New York logged a stunning 34.5 percent fall, according to Smith Travel Research. That’s even worse than the nationwide revpar drop of nearly 20 percent in the most recent trailing month. (Other cities, including Chicago, are taking it on the chin, as well, with declines worse than the national average.)
For all of 2009, this crucial benchmark of hotel health is expected to drop 26.1 percent in New York City, the worst revpar performance among U.S. cities, according to hotel industry research firm PKF Hospitality Consulting.
Before falling the furthest, New York City was flying high — higher than any other city. Until recently, New York’s hotel market enjoyed top status among American cities as a global financial capital and magnet for international tourists, with a vast and growing lineup of luxury hotels catering to well-heeled travelers. From 2006 to 2007, hoteliers had the clout to raise rates dramatically, sometimes by double-digit percentages.
“New York was its own little universe in terms of pricing — there was the rest of the U.S.A. and then New York in terms of pricing power and allure,” said Jan Freitag, vice president at Smith Travel Research.
Now that allure is melting like the wax on Icarus’ wings. With the U.S. financial system in crisis and leisure travel plummeting, New York hotels are reeling from a one-two punch. The 10,000 to 12,000 new rooms slated to become available by the end of 2010 will only make it harder for hoteliers to fill their properties.
On the corporate side, instead of eagerly shouting, “I’ll take Manhattan,” meeting planners are muttering fearfully about the so-called AIG effect of widespread outrage at corporate junkets held in luxury hotels. As a result, executives at many businesses have been canceling trips or choosing cheaper rooms.
Nationwide, high-end hotels are suffering more than lower-cost hotels, with revpar and occupancy levels off more than 20 percent, according to STR’s latest stats.
The cutbacks also have hit New York hard. In both reputation and reality, New York is synonymous with luxury; it ties with Hawaii for the most expensive rooms and meeting facilities in the U.S. Now, thanks to the recession, bankers who once especially helped fill upscale hotels are laying their heads on cheaper sheets. The most glaring example is Goldman Sachs’ recent directive that staffers visiting New York forgo the Ritz-Carlton to stay at the company-owned Embassy Suites.
“The luxury segment is getting pounded,” said Jeffrey Davis, executive vice president at Jones Lang LaSalle Hotels. “If you are traveling, you are not staying at the Ritz-Carlton or Four Seasons — you’ll never get that approved on your expense report.”
Corporate guests account for about a third of hotel stays, but domestic and foreign tourist travel that might offset that weakness is in free fall, too. A recent Commerce Department report showed travel and tourism spending plummeted at an annualized rate of 22 percent from the third quarter to the fourth quarter. That’s a drop even steeper than the falloff after the terrorist attacks of Sept. 11, 2001.
New York has long topped the list of tourist attractions for foreigners, followed by Orlando/Disney World, Los Angeles and San Francisco. All four cities have registered steeper than 20 percent revpar drops in Smith Travel Research’s latest study, but New York outpaced the others.
Part of the reason is that New York serves as the first point of entry for leisure travelers from Latin America, Europe and Canada.
“People from these three major areas are [usually] saying, ‘Let’s go to New York first,’ but with the global recession hitting every country, New York is seeing an impact on international visitation numbers,” said Freitag.
The city’s tourism arm, NYC & Co., is working hard to tap new markets such as South Korea and lure the cost-conscious with “crazy super savings” deals touted on its Web site. However, other cities without such a strong reputation for luxury are expected to rebound sooner.
In PKF’s latest 2009 forecast, Mickey trumps Manhattan — hotels in and around Disneyland in Orange County, Calif., will see an uptick in revpar in the fourth quarter and jump 7.7 percent in the first quarter of 2010.
Orange County also should benefit from supply increases well below the national average of 2.6 percent. New York, by contrast, is expected to post a 6.4 percent supply increase.
PKF estimates that half of New York’s projected 12 percent occupancy drop this year will stem from lower demand and half from extra supply.
“Other markets are not faced with the kind of supply increase New York is [facing],” noted John Fox, senior vice president at PKF Consulting.