Manhattan Lodging Forecast: Hotels Will Have The Upper Hand

<B>Manhattan Lodging Forecast: Hotels Will Have The Upper Hand</B>

By Robert Selwitz

New York City hotel observers and operators alike are predicting that 2000 will be yet another year in which buyers can expect rising rates and difficulty in finding accommodations.

"The only thing that might decline is the rate at which room charges rise," said Frank Dougherty, senior vice president of HVS International. "But there won't be any price breaks." While business travelers might find some deals during the slower first quarter, that will dissipate as winter ends, he said, noting that the 2,100 new rooms expected to become available this year were the only visible factor for possible rate or occupancy reductions.

Even with more than 1,000 midmarket rooms debuting in and around Times Square, Dougherty is convinced that there is plenty of demand to keep them at or near capacity. However, he said, luxury hotel traffic may decline slightly during slower periods, since "many of those properties aren't very good at yield management, preferring to retain the same rates year-round."

Supply growth, added Dougherty, should be the only reason last year's 82.5 citywide occupancy rates might slope slightly south. "Through the end of 2004, we see 8,000 new rooms becoming available in New York City, roughly a 13 percent boost in supply. That will bring occupancies back to the 76 percent to 77 percent levels, but not this year."

John Fox, senior vice president of PKF Consulting, not only concurs with Dougherty's optimism, but expects the first six-month occupancy increases to be 3 percent to 5 percent ahead of the first half of 1999. For the year as a whole, he is forecasting occupancy rates to be quite similar to last year's, with room rates rising 4 to 5 percent.

Dan Lesser, senior director of the hotel group at Cushman & Wakefield, believes that hotel traffic and the economy virtually are moving in tandem. "Even with the new supply, occupancies are strong," he said. "At peak periods, there's a tremendous amount of turnaways. That's what creates the pricing leverage the hotel community has enjoyed."

Noting a slight drop in room rate growth--1999 was lower than 1998 and 1998 behind 1997--"the economics of running a New York City hotel today still look pretty good," Lesser said. "Barring any unforeseen hiccup in the economy, such as a cratering of the stock market, the outlook for New York hotels continues to be quite strong."

Arthur Adler, managing director of Sonnenblick-Goldman Co., expects high Big Apple hotel rates to remain so because "room rates no longer are rising at double the rate of inflation as they were several years ago. They're still ahead of inflation growth and should continue to do so." Ultimately, he said, "we won't run 80 percent or higher occupancy rates forever, but I see nothing to indicate any significant decline in the foreseeable future."

New York City-based hotel consultant Stanley Turkel agreed that new supply likely will soften hotel occupancies, but not to the point of causing any real downward rate pressures. New York remains one of the world's hottest lodging markets, he said, pointing to the "success of Javits Center in attracting conventions, the great strength of the Wall Street market" and the fact that "New York is the world's business capital, and one of the world's most appealing entertainment centers." Furthermore, said Turkel, "New York City got fantastic free worldwide publicity from its safe and smooth millennium celebrations. I'm convinced that everyone who watched what happened and already had thoughts about coming here has had their desires enhanced."

That boost from the expensive and angst-ridden New Year's would be a welcome payback for local hoteliers, who spent millions to defend themselves against the supposedly fearsome Y2K bug.

Though doom never arrived, the Soho Grand's executive vice president Tony Fant, said that "all the Y2K preparation--including learning how to cope with everything from freeing guests trapped in elevators to dealing with potential bomb threats--has definitely made our entire staff better prepared to deal with anything that might arise in the future."

As for business prospects, Fant is concerned that this month "is looking a bit soft compared with last January. And during this first quarter, we'll work to maintain occupancies at the same level as in the first quarter 1999."

He also is concerned, partially due to a spate of recent major mergers, that "many corporations are trying to really reduce business travel costs. Since travel is one of the largest business expenses, I think we're starting to see pressures on what, for the past three years, were fairly relaxed views about business travel costs.

At The Palace, however, optimism remains quite high. Jennifer Tsonas, director of marketing, said January should be "ahead of last year's first month. And February and March are on par with 1999's booking pace, or even slightly ahead. Right now, we feel pretty good about this year's first quarter."

And Rudy Tauscher, general manager of Trump International Hotel and Tower, agreed, saying, "first quarter occupancies and rates look positive. We expect our market and guests will maintain their travel pace. And we will continue with the rates that were raised last September.