Real Estate Weekly
Image default
Deals & DealmakersFeatured

NYC hotel market strong but potentially stunted

The level of demand in the residential real estate market will tell you that New York is a place where people want to live.

A look at the hotel market suggests that it is in fact where people want to stay as well.

But is the hotel sector a market that has perhaps been stretched too far in the city? And are new hotels in danger of providing beds for travelers who are already spoken for?

“When you look at the numbers, New York is a prime market for hotels and still has significant unmet demand,” Mitchell Hochberg, president of Lightstone told Real Estate Weekly.

“For instance, London has 17.4 million visitors annually, and 136,000 hotel rooms (as of 2015). New York, on the other hand, receives 58.3 million visitors annually and only has 107,000 hotel rooms.”

According to Hochberg, 2015 saw a 4.1 percent jump in hotel supply as well as a 4.1 percent rise in demand for hotels in the area.

Lightsone is playing a role in supplying the climbing demand.

In January, the firm secured a $205 million construction loan from Square Mile Capital Management in order to fund its current partnership with Marriott which will bring the Moxy hotel brand to NYC.

The new U.S. flagship hotel is planned for Times Square and it will be joined by three additional locations throughout the city.

“Moxy is a fresh, bold, energetic, micro-format lifestyle hotel with smartly designed and technologically advanced rooms coupled with amplified and energized socially activated public spaces,” said Hochberg. “It’s an accessible product with the soul of a boutique hotel, where affordability is not a sacrifice of style or comfort. Moxy provides visitors will all the amenities of a boutique hotel,” he continued, “including bars and restaurants — for between $250 and $300 per night.”

Moxy’s presence is not the only heavy-hitting investment being poured into Midtown.

Shawmut Design and Construction is in the homestretch of completing a $180 million complete remodel and expansion of the now InterContinental New York Barclay hotel at 111 East 48th Street, near Grand Central Station.

“Bringing this significant transformation to life for an iconic New York City institution has been both an honor and an exciting milestone for our team,” said Randy Shelly, vice president at Shawmut.

“It’s been a real pleasure restoring the unique details found on such a storied property, and we are eager to share its new look with the Barclay’s staff and guests”

The significant investment is meant to transform the original and outdated Barclay’s hotel into a more serious player in the local hotel arena.

But should the newly minted hotel be worried about the modern competitor that is Airbnb? Would the ability for locals to rent out space in their homes make such investments unwise? Not according to Hochberg.

“Overall, Airbnb has not had a significant impact,” said Hochberg who feels that the alternative to traditional lodging has not disrupted the market.

“Airbnb only represented 5.5 percent of overall lodging demand in 2015.  It also targets a different customer. The majority of Airbnb guests stay for more than seven nights, which is similar to extended stay hotels. Such hotels represent only four percent of hotel rooms in Manhattan. Moreover, 40 percent of Airbnb guests stay between seven and 29 nights.”

Not all are taking Airbnb as lightly as Hochberg.

“AirBnb has taken a bite from the hotel market. It has definitely taken some of the rooms that would have gone to normal (hotels), whether they be extended stay or transient,” said Alan Cohen, a partner at ABS Partners.  “Customers have now gone to Airbnb.”

“Airbnb has really hurt the hotel business,” Cohen added. He feels that select service or limited service providers may be in danger of seeing a drop in business due to the existence of Airbnb and the high level of similar hotels in the area.

Despite acknowledging the newcomer’s formidability, Cohen doesn’t feel that the hotel market in general will suffer any grave consequences due to Airbnb’s presence.

Cohen played a role in ensuring the future of Hotel Elysée, a boutique hotel home to the famous Monkey Bar, when he represented both the buyer and seller in a $55 million sale which transferred ownership from the physical structure’s former owner to the proprietors of the hotel itself.

Cohen is bullish on smaller, boutique hotels and feels that there are neighborhoods in Manhattan and the boroughs that are ripe for more of them.

“An area that you have not seen a lot of hotels yet is downtown Brooklyn,” Cohen told Real Estate Weekly.

As for Manhattan, Cohen’s sights are set firmly on the areas south of Midtown.

“If you look at hotels like the SoHo Grand Hotel, it’s done tremendously as a boutique hotel because of the Tribeca neighborhood that it’s in,” said Cohen.

“The Elysée that I just sold is a really wonderfully run hotel in a wonderful neighborhood between Park Avenue and Madison on 54th Street,” he added. “That clientele continues to come back.”

As for Cohen himself, he has begun working on the hotel presence in Fidi.

“The Financial District doesn’t have anything like that,” said Cohen pointing to the lack of boutique hotels in the area.

“I’m currently working on a development site that is possibly being purchased as a hotel and I’m also working on a conversion right now that is a residential building. The potential purchasers are looking into making it an extended stay hotel.”

Tom McConnell, executive managing director at Cushman & Wakefield’s Global Hospitality Group does not see any risk of the hotel market outpacing itself in terms of supply and demand in the near future.

“It depends which way you lok at it. There’s been really a historical increase in supply over the last five years in manhattan and it’s going to continue for another year or so, so I think when we look back in 10 or 15 years I think this period between 2012 and 2017 we’ll see the biggest increase in supply in Manhattan. It’s at least the biggest increase since the 1920’s.”

“From a pure demand standpoint — demand as defined by people needed lodging accommodations in New York City on any given night —  it doesn’t seem like it’s over saturated at all,” McConnell said, noting that occupancies in the city have remained relatively consistent.

However, while there may be a steady flow of customers looking to fill both the new and old rooms of the large as well as small hotels-with or without Airbnb, McConnell does see those who have invested in the hotel industry facing an one hiccup.

Even if the growing level of competition isn’t leading anyone to shutter their windows, it’s halting full hotels from increasing their rates. “You would assume that occupancy would go down and vacancy would go up,” said McConnell. “(New hotels) have been built and people continued flowing into the market. That’s with Airbnb, too.”

He continued by saying that “occupancy may be flat in 2016 or may be down a little bit, but it’s not collapsing. One half of the coin is yes, it’s not saturated. People are still filling these hotels up night after night. But the other side is that with the new supply it’s been difficult to push rate.”

McConnell said that branded hotels, like Hilton or Marriot, are able to provide these rooms at lower rates due to their size and this will hurt more generic-brand hotels that try to compete.

That said, McConnell still feels that there is room for all of the hotels coming to the city and while revenue growth may not be in the cards over the next few years, he doesn’t see business hurting.

“I think the market is so broad that there is probably a market for pretty much anything,” said McConnell. “Whether it be a big-time convention hotel, or whether it be a small boutique hotel charging $700 a night, there seems to be enough people in New York that each type appeals to.

“If you think about the end game of all this, are they just going to build hotels until the market drops? I tend to think not,” he added.

McConell cited the shrinking number of available sites to build hotels as a factor as well as the leveling off of room rates which will likely not promote further expansion.

Related posts

Avison Young arranges 99-year ground lease for an estimated $21.5 million


Rosewood Realty Group Brokers $36.5 Million Sale of 15-Story Hells Kitchen Mixed-Use Building


AI and cloud adoption propel data center demand to record levels for 2023