NY Rate Prediction: Rooms To Remain Very Expensive

<B> NY Rate Prediction: Rooms To Remain Very Expensive</B>

By Robert Selwitz

Big Apple-bound business executives hoping for lowered rates or easier access to New York City hotels have little to look forward to during 1999. Assuming no spate of travel-squelching terrorist events, or a complete Wall Street collapse, rates should stay high and, during peak seasons, rooms tough to acquire.

Karen Rubin, senior vice president of HVS International, said that "1999 will continue as before. The only possible hitch might be war in Iraq, Israel or elsewhere in the Middle East, or, God forbid, if a bomb goes off at a U.S. airport or aboard a plane. Should that happen, the next day would be a great time to book future hotel reservations since cancellations invariably follow such events. Barring that, the demand for travel and quality New York hotel rooms will continue to be intense."

According to a report by E&Y Kenneth Levanthal, annual New York City hotel occupancy rates last year reached 83 percent, compared with 81.5 percent during 1997. And revenue per available room reached an all-time-high of $159 a day, 11.5 percent greater than the previous year. Annualized, that works out to $32,008, compared with $10,100 elsewhere in the United States.

That financial performance is a prime reason that Sean Hennessey, head of the hospitality practice at PricewaterhouseCoopers, said that 16 hotels with 3,236 rooms are under construction, scheduled for serious renovation or on the drawing board. He said nine more, with 3,540 rooms, are in the planning process, and 17 additional properties--offering nearly 6,500 rooms--are in the proposal stage.

However, little of this activity will impact the Manhattan hotel scene this year. Once the 143-room Cipriani Hotel on Wall Street debuts in May, the next major entries include a 564-room Planet Hollywood Hotel at Broadway and 48th Street in January 2000; a 300-room Hotel Sofitel (at 45th Street, between Fifth and Sixth avenues) in March 2000; a 455-room Doubletree in Times Square, scheduled to open in spring 2000; a 400-room Embassy Suites in Battery Park City and the Tribeca Grand (Sixth Avenue at White, Church and Walker streets), both set for June 2000; the 860-room EWalk property at 42nd Street and Eighth Avenue, targeted for a September 2001 opening; and a proposed 200- to 300-room luxury hotel at Lexington Avenue and 58th Street, targeted for a 2002 debut.

PricewaterhouseCoopers said that though annual occupancy rates could drop back to 82 or 81 percent, overall room rates should rise 7 to 11 percent. That breaks down to 10 to 11 percent for convention class hotels, 9 to 10 percent for tourist hotels, 8 to 9 percent for business class properties and 7 to 8 percent for luxury-class hotels.

What's driving so much of this activity, according to PricewaterhouseCoopers, is FIRE--Finance, Insurance and Real Estate--sectors that directly impact Manhattan hotel revenues. The PWC report stated that a 1 percentage point rise in Wall Street employment equals a 0.7 percent rise in Manhattan hotel revenues. And Wall Street firms are the top corporate accounts for many deluxe and luxury Manhattan hotels.

Roger Cline, partner and director of hospitality consulting at Arthur Andersen LLP, said, "The cost of a New York City hotel room must be fairly weighed. Compared to a room in Toledo, New York is extremely expensive. But when matched against other world class cities such as Paris or London, one sees New York's rates in another light." Indeed, he said luxury room buyers might find that the $600 per night high season rate at New York's St. Regis matches up quite favorably with prime-time tariffs at the Ritz-Carlton in Paris.

Arthur Adler, managing director at Sonnenblick-Goldman, said a moderating influence upon New York hotel rates might come from within the properties. "When demand is at its highest, hotels must still be constrained from charging the maximum they could theoretically obtain. At some point the price-value relationship can swing out of kilter. And hotels must guard against alienating the customer, which might have future consequences when the market finally softens."

Adler added another grim tiding for seekers of traditionally discounted or group rates: He predicted that during 1999 and as long as the boom lasts, hotels will increasingly use their leverage to stick much closer to rack rates, thereby maximizing revenue per available room. Clearly, that is not good news for convention and meeting planners seeking to bring groups to New York.

As an E&Y Levanthal spokesman cautioned, the likelihood that Manhattan hotels will turn their backs on group business could be a portent worth tracking. "With the average daily rate for Manhattan approaching $200 per night, it could be pricing itself out of some market segments, including wholesale leisure travel and lower-rated corporate travel," he said.