By Andrew Posil, Cushman & Wakefield
On an island of soaring property values, Chinatown offers hotel developers in Manhattan the illusive buy-low, sell-high proposition.
The adolescent nature of Chinatown’s hotel market creates the type of risk that may harbor great rewards. The market’s key underlying fundamentals include: relatively lower prices for development properties compared to other parts of Manhattan; the authentic character of the neighborhood appealing to a growing demand for experiential travel; and the opportunity to serve a growing number of Chinese visitors.
Chinatown offers hotel developers bargain pricing by Manhattan standards. This is especially true over the past 12-18 months, as land prices continue to spike. Manhattan’s average price per buildable square foot (BSF) jumped to a record high in 2014, up 30% over the previous year’s average.
To understand the history of Chinatown is to realize the melting pot that defines New York- it has been home to the largest number of immigrants in the city since the 1800s. After immigration quotas from China were normalized in 1965, Chinatown became a regional hub for the Chinese American community.
At the time, Lower East Side and Little Italy residents fled the economically troubled neighborhood. Affordable housing, commercial space and a declining garment industry’s low capital investment requirements enabled Chinese entrepreneurs to establish garment shops and local jobs. Restaurants and other small businesses followed soon after.
Despite its entrepreneurial beginnings, Chinatown’s economy is still recovering from the loss of garment jobs and aftershocks of 9/11. However, neighborhood stabilization and rebuilding efforts combined with the City’s current prosperity have led to increased investment in Chinatown and Lower Manhattan. Private development, especially hotels, has increased in the area as a result.
Although tension between preservationists and developers exists, Chinatown stands to gain sustained viability with responsible hotel development. Wellington Chen, the Executive Director of the Chinatown Business Improvement District, highlights the hotel industry as an important part of the neighborhood’s revitalization.
“Great communities are walkable and sustainable,” he says, “Visitors will stroll at night, shop, dine and support our economy.” Hotels can also provide local employment for residents with diverse skill sets, especially for neighborhoods filling the economic vacuum left by a disappearing garment industry.
While the popularity of hotels as a development product is largely demand-driven, zoning regulations often have an impact as well. Chinatown, and other previously industrial areas, frequently maintain regulations that prohibit or limit residential development. Consequently, hotels often become the most profitable use for various properties in a submarket transitioning from widespread industry.
While the Lower Manhattan district takes up less than 5% of New York City’s total hotel inventory of 102,000 hotel rooms, it accounts for 21% of all hotel rooms under construction throughout the City. In 2015, Lower Manhattan’s hotel room inventory will grow by 33%. Even so, until recently, Chinatown’s hotel inventory consisted primarily of economy brands and independently-operated budget hotels with few recent notable openings.
However, hotel developers have recently shifted attention toward Chinatown bringing new, high-quality inventory to the area.
NYC’s tourism data suggests that Chinatown’s hotel market presents several unique opportunities. First, Chinatown’s vibrant street life is ideal for experiential travel, a growing trend in the travel business. As a result, boutique hotels, which often strive for authenticity, are likely a good fit.
The Jade, the Ace Hotel and Gansevoort Meatpacking are good examples of nearby contextual hotels that capture the essence of their respective locations while also providing the neighborhood with notables ocial and economic cornerstones.
Additionally, the rising number of visitors from China has positive implications for hotels in Chinatown. In 2013, international markets accounted for 48% of total NYC visitor spending, and lodging accounted for 28% of the $38.8 million that visitors spent, a six percent increase from 2012.
China is one of New York’s largest markets for overseas travelers, and that group is increasing dramatically. Chinese visitors to the city increased by 182% from 2010 to 2013. According to the Marriott International Sales Director for the New York City region, Marriott experienced 17% growth in 2013 from the Chinese market in the New York region.
Despite Manhattan’s appeal, many visitors from China are lodging in New Jersey instead. The New York Times recently reported that some New Jersey hotels are over-saturated with Chinese demand. Manhattan’s budget hotels could clearly grow the proverbial pie by capturing a greater percentage of cost-conscious Chinese visitors.
Luxury hotels are also a possibility for Chinatown, as upscale experiences are expected to gain popularity among Chinese visitors. The Marriott Marquis hotel in Times Square recently booked its first large business group from China and supplied each guest’s room with a special teapot. To prepare, Marquis staff learned Chinese customs and greetings. Starwood and Hilton are also endeavoring to attract Chinese guests at their US locations.
Chinatown has the cultural capital to attract visitors from China- it is the center of New York City’s Chinese immigrant community, and it is home to the densest population of Chinese people in the Western Hemisphere. Chinatown has the unique and exciting opportunity to become the liaison for leisure and business travel between China and the United States.