A flurry of hotel development projects in New York should have little impact on the city's high occupancy rates but may have slowed corporate rate growth this year, according to analysts.
As it had been in 2012, New York last year was "the most active hotel investment market globally," according to real estate investment management firm Jones Lang LaSalle, which noted particular supply growth in the city's downtown and Midtown South areas.
While most of the United States is not seeing much hotel development, at least in the upper tiers, New York has more than 11,000 rooms under construction, almost quadruple the number in the next busiest-U.S. market, Washington, D.C., STR reported.
Among notable recent openings, Marriott International in January opened a 68-floor hotel tower located at Broadway and 54th St. Reputedly the tallest hotel building in the United States, the property houses both a Residence Inn and a Courtyard property. Hyatt late last year opened the 487-room Hyatt Times Square on 45th St. and this summer plans to open a 210-room Park Hyatt near Carnegie Hall. Meanwhile, the Viceroy brand made its debut in the city last year with a property near Central Park.
Several other brands are slated to debut in the city in the coming years. Raleigh-based developer Concord Hospitality Enterprises plans to open this year in Chelsea a hotel under Choice's upscale Cambria Suites brand, followed next year by a second Cambria property in Midtown. The company by year-end plans to break ground on a new AC hotel, a European brand that Marriott is importing to the United States, in the Hudson Yards area in western Manhattan, president and CEO Mark Laport said. It also is developing a Courtyard property near One World Trade Center.
Any new supply in the city, however, quickly will be absorbed by demand.
"It's almost a bottomless pit, there is so much unsatisfied demand," said PKF Consulting senior vice president John Fox during an Association of Corporate Travel Executives event this past November in New York. "If it's sold out in Manhattan, there's somebody staying out in Newark."
Despite all the rooms added in New York during the past several years, "occupancy levels in New York City are higher than they've ever been, over 85 percent on an annualized basis," said Lodging Advisors CEO Sean Hennessey. "When you're riding 85 percent, the only thing New York is not able to sell is some Sunday nights and a couple of national holidays."
Rising corporate demand is a component of that growth. Speaking at The BTN Group's Travel Management 2014 event in December, Citi managing director and global head of general services and travel Mick Lee said that for her firm she is expecting a volume increase in New York this year between 20 percent and 25 percent.
PKF's Fox said that while supply growth might pull down occupancy levels in New York by a point or two, he expected it would be another year or two before that trend begins to have a major impact on corporate negotiated rates. However, it already appears to be a mitigating factor. Early reports from mega travel management companies indicate that 2014 corporate hotel rates in New York are up—but only moderately.
"Everyone was bracing for the worst," said Marwan Batrouni, hotel practice area leader for BCD Travel's Advito. "We saw increases, but not to the level that everyone was expecting."
Carlson Wagonlit Travel hotel solutions group director Yon Abad said his group saw 2014 New York corporate rates increase by 2.7 percent year over year, showing "a consciousness by the hotels to keep the rates in order to keep the market share."
Lodging Advisors' Hennessey agreed that room rates overall have been increasing at a slower pace than usual—between 3 percent and 5 percent—and should continue on that path in the near future. That compares with past industry recoveries during which the city's hotels saw double-digit percentage rate growth.
But this is not all purely a function of supply versus demand.
"Part of that is we are building lots of Hamptons and not a lot of Four Seasons, so the average [tier level] of hotel is going down in New York City," Hennessey said.
Lower-tier development is a direct answer to the demand the city is seeing, PKF president Mark Woodworth said. "Fundamentally, we need more rooms in this market, and people like those products—they like the Hampton Inns and the Holiday Inn Expresses," he said. "They say, 'Give me a room, and I don't need a lot of space, as I'm in New York to do something outside or somewhere else.' "
This report originally appeared in the February 2014 edition of Travel Procurement.