New York Marketability Analysis - Hotel

Introduction

New York City has historically been one of the strongest hotel markets in the U.S. In the past couple years, it has maintained high level of occupancies and brought in rates well above the national average. Although NYC only ranks seven among U.S. markets in its inventory of guestrooms, it still accounts for 6% of all room revenue. The strong performance of NYC’s lodging market has been largely due to the growth in demand, especially during the period of 2004 through 2008. In 2008 alone, 48 million people, including about 10 million international visitors, traveled to New York City contributing $30 billion in revenue to the local economy.

Supply and Demand Analysis

New York City

In recent times, however, this dominant market has been severely impacted by the series of events that led to the current economic crisis. The collapse of Wall Street, culminating with Lehman Brothers’ bankruptcy, has had a deteriorating effect on NYC’s hotel market – especially Manhattan. As of August of 2009, citywide occupancy level was down 9.7%, ADR was down 25.1%, and RevPAR was down 32.4% in year-to-year comparisons. Furthermore, there has been a mismatch in supply and demand, with 4.6% increase and 5.5% decline, respectively. Consequently, hoteliers have started to implement measures, such as offering discounted room rates, in effort to offset decrease in occupancy and stimulate demand.

It appears unlikely that NYC’s hotel market will be recovering anytime soon. As unemployment level remains high and business activities declined due to tightening of the credit markets, hotel fundamentals continue to deteriorate. Furthermore, the sharp increase of new supply entering the market or currently in the pipeline may have a detrimental effect on recovery time. According to an article by Sean Hennessey in March of 2009, there were 11,473 rooms under construction. If these projects do enter the market, the gap between supply and demand would widen putting a downward...