While 2005 is shaping up to be a record-breaking year for both hotel occupancy and average daily room rates in New York City, hotel analysts said the worst is yet to come for travel buyers. With demand up and little new supply on the horizon, analysts predicted that the next several years will bring even more sold-out dates and steadily increasing rates, particularly in midtown Manhattan.
The most recent figures from Smith Travel Research indicate that hotel occupancy in New York averaged 82.2 percent during the first seven months of 2005, a 3.9 percent increase from the same period in 2004. At the same time, average daily room rates rose to $191, an 11.7 percent increase during the first seven months of 2004.
For the month of July alone, New York hotels achieved 85.1 percent occupancy and average room rates of $187.38, an increase of 13.5 percent over room rates in July 2004.
"Occupancies in Manhattan will average close to 86 percent for all of 2005, which means there are lots of dates when hotels are sold out completely," said Kirk Reed, a consultant with the PricewaterhouseCoopers hospitality and leisure practice in New York. "Another trend we're seeing is that occupancy levels are flattening out over the year, with less difference according to season. Even traditionally slower months, such as July and August, are very busy."
Hotel analyst John Fox, senior vice president of PKF Consulting in New York, added that many business travelers will have to be extremely flexible in their choice of hotel during the peak fall season. "If you don't plan ahead, you're out of luck," he said. "People are going to have to be prepared to pay big rates and may have to trade up or trade down in terms of hotel types."
A recent report prepared by PwC using data from Smith Travel Research predicted that occupancy rates in New York will continue to climb until 2009 when they reach a peak of about 88 percent. Room rates will continue to rise as well, although perhaps not as much as they have this year. "We're looking at annual room rate increases of 8 to 10 percent over the next few years because of the rising occupancies," said Reed.
Why the squeeze? Both Fox and Reed laid part of the blame on condominium conversions, which since 1999 have taken 3,579 hotel rooms off the market. They also noted that developers are finding it more lucrative to build residential properties than hotels
"The situation is such that New York, particularly the areas that need it most, is not getting the new hotel supply it needs," said Reed. "It's very expensive to build a new full-service hotel in Manhattan. Developers would rather build apartment buildings."
At the same time, rising demand from both business and leisure travelers increasingly is pressuring rates and availability. "Rising demand is really a bigger factor than condo conversions," said Fox. "The general economic climate is encouraging more business travel to New York, while the weak dollar is encouraging more people to come here from overseas and more Americans to stay within the U.S."
Respondents to a recent survey of members of the Hotel Association of New York City conducted by the Tisch Center for Hospitality, Tourism and Sports Management at New York University credited the improving U.S. economy and the strengthening corporate travel market as the two most important factors driving the city's high occupancies. Sixty-two percent of those surveyed predicted that business travel to the city will rise more than 10 percent this year, more than any other travel segment.
Although business travelers to New York during the years ahead will find more hotel rooms, most new rooms will not be found in large, full-service hotels or in midtown Manhattan. "A lot of projects in the pipeline are starting to come to fruition, but the biggest difference from prior years is that new hotels are being built outside traditional areas—most are going up below 34th St., above 90th St. or in the outer boroughs," said Reed. "They also tend to be smaller hotels in the 100- to 125-room range."
However, Reed believes that rising hotel rates one day will spur some full-service hotel development in midtown. "We'll get to that point eventually, but we're not there now," he said.
The biggest hotel on the horizon for Manhattan is the 1,200-room headquarters property scheduled to open at the expanding Jacob K. Javits Convention Center in 2009
(Meetings Today, Jan. 17). While Reed expects the Javits expansion to spark the development of other hotels in the area, he added that conventions likely will absorb the new supply.
The largest property under construction in midtown Manhattan is the 414-room Residence Inn by Marriott Manhattan/Times Square, scheduled for completion in November. The extended stay hotel located at 39th St. and 6th Ave., which is the first Residence Inn in New York, will offer studio suites with kitchens, complimentary buffet breakfast and 1,000 square feet of meeting space.
Another Marriott property under construction is the 204-room Courtyard by Marriott Harlem scheduled to open in late 2006 at 125th St. and Park Ave. The first national-brand hotel in Harlem, the hotel will be part of a 585,000-sq.-ft. mixed-use development that will include office and retail space.
An expansion underway at the New York Marriott at Brooklyn Bridge, set for completion in fall 2006, also will boost new room inventory. The expansion, which consists of a 24-story hotel tower linked to the existing structure by a pedestrian bridge, will add 280 additional hotel rooms to the Brooklyn property, bringing its total to 656.
No matter where the new hotels will be located in the city, they are expected to find a ready market.
"People will go to the outlying locations because they have to," said PKF Consulting's Fox. "We're sold out much of the time. If you want a room, you will go further out."