Despite a record-breaking year of tourism in New York City, with 60 million people visiting the Big Apple, the hotel market is in a slump.
According to a report by online marketplace Ten-X, New York City is a “sell” market, along with Northern New Jersey, Houston, Pittsburgh, and San Jose, California.
The report estimates that the conditions in those markets could lead investors to consider selling their properties. Though economic conditions within those cities vary widely, all are experiencing a big surge of new supply and, combined with a decline in international travel, are enduring a “weakened” hospitality climate.
Chris Muoio of Ten-X said that the rate of traditional supply being created hit five percent year-over-year, a high number that has eroded pricing power, and sent room rates declining year-over-year.
He sees supply continuing to grow at that rate, a factor that it will weigh on occupancy rates, possibly dropping them from 86 to 84 percent over the next, though he sees room rates stabilizing. on-traditional supply such as Airbnb has continued to grow, although the service hit a roadbump last October when New York State passed legislation to reduce the number of short-term rentals on the site.
Airbnb filed suit against the city and the state over the legislation, claiming the restrictions were unconstitutional and infringed on its free-speech rights.
Airbnb settled the suit in late November, with both sides agreeing that New York City, and not the state, is responsible for enforcing the new law.
In addition, because Airbnb does not release data on bookings, Ten-X tracks interest in listings on Airbnb in doing its research for reports on the hospitality industry.
“It’s going to be very interesting next year to see what happens, if the company comes to some agreement with the city and state,ˮ said Muoio of the Airbnb ruling. “So there’s a lot of uncertainty.”
In its Manhattan lodging index 3Q 2016 report, accounting and consulting firm PricewaterhouseCoopers (PWC) reported a tepid growth in hotel occupancy and a 3.1 percent decline in revenue per available room (RevPAR).
The strength of the US dollar and the weakness in corporate transient demand, along with a significant increase in supply, have all continued to weigh negatively on hotel performance in Manhattan, according to the report.
Among the five submarkets tracked by the report, lodging performance was largely mixed. While Midtown East had a 5.5 percent decline in occupancy, Upper Manhattan saw a 3.1 increase in occupancy.
Lower-priced hotels in the upscale and upper mid-scale classes were better able to grow occupancy levels during the third quarter, which helped them outperform relative to higher-price hotels in the luxury and upper upscale segments.
The report also noted that independent hotels continued to outperform chain-affiliated hotels throughout the third quarter. While independent hotels saw a 2.1 percent increase in occupancy levels, it was offset by a 1.1 percent decline in average daily rate (ADR). Chain-affiliated hotels experienced declines in both occupancy and ADR, resulting in a 5.4 decrease in RevPAR for the same period.
Development firm The Lightstone Group is betting big on the NYC market, bringing several Marriott-brand Moxy hotels to NYC in the next few years.
Lightstone president Mitchell Hochberg is positive about the new supply coming to Manhattan, and said he didn’t think the impact of Airbnb on the hotel market was “as significant” as some had indicated it was, adding that the new state law against the online marketplace would help the industry.
Hochberg is hopeful that the Trump administration will be helpful to the industry. He pointed to president-elect Trump’s pro-business policies being beneficial to the economy, a cut in personal tax rates meaning more discretionary income, and an increase in infrastructure that could predate more jobs.
“I think all in all it’s very positive for the industry,” Hochberg told Real Estate Weekly. “I think at the end of the day, we’re coming off a tough year because of the strong dollar, so hopefully the stimulus will help 2017 be a stronger year.”