After a relatively strong start to 2008, the year finished very badly for NYC hotels. During the first 8 months of the year, New York City hotels were able to weather the economic storm that had been brewing since late in 2007, better than most markets. While it was clear that the high-flying days of the past several years were beginning to wane, especially in the luxury segment, hoteliers in the city had been able to continue to grow rate. However, the fall of Lehman Brothers in September of last year seemed to signal a real sea change in hotel performance. That event heralded some fundamental changes in the way corporate America was doing business, especially as it related to travel. No longer does it seem acceptable to stay at high-end properties for business reasons, and even the once taken for granted necessity for company and group meetings has been called into question.

For a city like New York, which has a very high proportion of its hotel supply at the high end of the marketplace, these changes are going to make 2009 an extremely difficult year for the hotel community. The effects can already be seen as through the first quarter of 2009, citywide RevPARs are down over 20 percent. We are hopeful that this level of decline will moderate as the year goes on; otherwise, 2009 will be remembered as very dark days for hotels in the city.

While this modified behavior is almost certain to change again over time, especially as the economy and specifically the health of the financial community improves and businesses return to profitability, a recovery is liable to be several years away. In the meantime, hoteliers should do all they possibly can to preserve room rate integrity because as was clearly demonstrated in 2001 and 2002, it can take many years to recover from extended periods of room rate discounting.