HVS International : 2005 Manhattan Hotel Market Overview

Survey of Members of the Hotel Association of New York City

Cristyne L. Nicholas
President & CEO,
NYC & Company

Travel and tourism continue to thrive in New York City. This dynamic destination remains popular among domestic and international visitors, who are drawn to our world-class cultural attractions, restaurants, shopping, entertainment, and special events. In fact, New York City holds the position of being the number one U.S. destination for overseas visitors. Credit the remarkable resurgence of tourism to a combination of smart destination marketing, favorable currency exchanges, and a number of notable infrastructure improvements citywide.

At NYC & Company, we are confident in the growth of the city's $24 billion tourism industry, which continues to be a vital contributor to the local economy, generating more than $1 billion in city tax revenues and supporting more than 290,000 jobs in all five boroughs.

Recent forecasts give us reason to be optimistic. Overall, air flights and passenger volume are up as a result of competitive fares and new routes in and out of the New York City area. While the 2004 figures have yet to be released, the latest projections reflect a new high of 39.6 million visitors, which includes a 4.0% increase in the domestic market over the previous year to 34.3 million. Estimates for international visitors indicate double-digit growth with a 10.2 percent increase to 5.3 million visitors, marking a first time rise since September 11.

Hotel occupancy for the first quarter of 2005 is on track to reach levels almost 5.0% above the same time last year. Projections include a 6.0% increase in January to an occupancy level of 72%, while February shows a potential increase of as much as 10% with an extra 85,000 room nights generated by "The Gates." This moves the occupancy rate well above 80 percent, according to PricewaterhouseCoopers.

In 2004, hotel occupancy levels averaged 83%, with a current average daily rate of $216.00, representing a 6.7% increase and $18.00 more than 2003. New York City's hotel portfolio continues to grow, reflecting a strong demand for our quality travel product. Notable new hotels and renovations include the Affinia 50, the Doubletree Metropolitan Hotel, the Hotel QT, the Solita Soho Clarion Hotel, the Dream, and the Hotel on Rivington. Properties under development include the Blue Moon Hotel, the Downtown Hotel, and The Paramount New York, which will be re-branded as the Hard Rock Hotel New York.

A number of exciting developments are underway. The creation of a modern cruise ship terminal on the Brooklyn waterfront and improvements to the Passenger Ship Terminal on the West Side of Manhattan will meet the demand for New York City's growing cruise industry, while the expansion of the Jacob K. Javits Convention Center will further strengthen our appeal as a meeting and convention destination.

An online survey of members of the Hotel Association of New York City was conducted by the graduate students of New York University’s Preston Robert Tisch Center for Hospitality, Tourism, and Sports Management. The purpose of the survey is to gain perspective relative to the hotel market in New York City. Over three-quarters of the HANYC members who responded to the survey are General Managers or Managing Directors. A summary of the findings follows:

Ninety-eight percent of the survey respondents believe that New York City’s year-end occupancy rates for 2005 will be higher than those of 2004.

Similarly, ninety-six percent of the respondents expect year-end ADR and RevPAR levels to be higher than 2004 levels.

Thirty-five percent of respondents believe that the New York City hotel market recovered at a faster pace than anticipated in 2004 due to the renewed growth of domestic corporate travel.

Other respondents attribute the accelerated growth to the favorable exchange rate (22%), fading security fears (11%), pent-up demand for U.S. leisure travel (9.0%), and an increase in meeting and group business (4.0%), while almost 20% of respondents believe that the accelerated growth in New York City is the result of a combination of all five of these factors.

By year-end 2005, roughly 42% of the survey respondents intend to decrease their use of third-party Internet distributors, while almost 38% intend to increase their use. The remaining 20% of respondents anticipate no change in their utilization of this distribution channel.

In regard to third-party Internet distribution websites, roundly 48% of the respondents believe Expedia.com has had the most positive effect on their bottom line, followed by Hotels.com, at about 21%.

Approximately 54% of the respondents note that Priceline.com, as the third-party Internet distributor, has had the least positive effect on their hotel’s bottom line.

According to respondents, the distribution channel driving the most rooms revenue to New York City hotels is on-property reservations. Roughly 22% of respondents chose this option while about 17% believe call centers to be the most effective. Direct sales, a hotel’s own individual website, and third-party Internet distributors each account for nearly 15% of the responses.

The distribution channel deemed most cost effective by New York City hotels is a hotel’s own individual website, as stated by slightly more than 54% of survey respondents.

Approximately 27% of the respondents indicate Public Relations is the most effective marketing channel for New York City hotels, followed by paid advertising at 25%, and trade shows at almost 16%. Other respondents mention Internet advertising such as key word search advertising and direct email, in addition to guest referral and frequent guest programs, as also being effective communication channels, albeit at insignificant percentages.

According to the survey respondents, the three most important issues and challenges facing New York City’s hotel market within the next two to three years will be economic conditions (82%), labor costs (74%), and terrorism (48%).

Employee turnover (53%), acceleration of new construction (48%), and war (36%) are the three least important issues and challenges facing New York City hotels, according to respondents.

The two most important factors that will influence the sustained growth of New York City’s hotel market within the next year are an improving national economy (80%) and the continued growth of corporate travel (74%). Exchange rates (65%), an increase in meeting & group business (58%), and fading security fears (48%) are also important factors that will influence sustained growth.

Sixty-two percent of the survey respondents expect that commercial travel will increase by growth rates greater than 10% in 2005, compared to 2004, while leisure (51%) and meeting & group (49%) travel will experience growth at a slower pace. None of the respondents surveyed are under the impression that any of the hotel categories are expected to experience decreases greater than 10% in 2005.

Almost 59% of the respondents indicate that the Upscale segment will be the most successful in terms of RevPAR in the New York City market for the next three years, followed by Luxury (17%), and Mid-Scale with and without F&B (11%).

Seventy-one percent of the respondents indicate that the domestic commercial travel segment has experienced relatively strong growth increases when comparing this year to last, while 52% of respondents noted slower increases in international commercial travel.

The reverse was true for the leisure market, with 71% of the respondents reporting increases greater than 10% in international leisure travel and 47% reporting slower growth increases in domestic leisure travel.

For the meeting and group segment respondents report no significant change in either international or domestic travel.

Respondents overwhelmingly report (80%) that Europe is the strongest generator of international travelers to New York City hotels. The only other significant percentage is that of Asia/Pacific (13%).

Slightly more than 91% of respondents report that their hotels are not adding cultural amenities in response to the increased demand of international travelers responding to the favorable exchange rate.

More than half of the respondents (56%) indicate that they have neither reintroduced nor added any new amenities to their hotels since the economic downturn.

Approximately 37% of the respondents who have reintroduced or added amenities since the economic downturn are charging guests for these services. However, the large majority of respondents (63%) are not charging guests for these amenities.

The presence of loyalty programs is equally split among the respondents, with 50% indicating that they had a loyalty program at their properties and 50% indicating that they had no loyalty program.

Among the 50% who responded in the affirmative, the average percentage of room nights generated by the loyalty program is between 38-39%.

Fifty-five percent of those same respondents indicate that the room nights generated by the loyalty programs has resulted in relatively small increases in their property’s ADR, while 27% indicate increases greater than 10%, and 14% indicate no change in their property’s ADR.

Forty-five percent of the respondents also note relatively small increases in their property’s RevPAR resulting from room nights generated by their loyalty program, while 41% indicate increases of more than 10%, and 9.0% indicate no change in their property’s RevPAR.

When asked their impression of the expansion of the Javits Center, roundly 78% of the respondents feel that the impact would be positive and almost 22% feel there would be no impact.

Although 54% of the respondents indicated that their properties had no changes planned in light of Javits expansion, roughly 24% will renovate, 15% will target convention business, and 13% will reposition their properties.

Overall, the respondents believe that occupancy, ADR, and RevPAR are expected to be higher in 2005 than in 2004. Most attribute the fast pace of New York City’s recovery to the renewed growth in corporate travel, and accordingly, anticipate stronger growth increases in commercial travel than in leisure and meeting and group travel when comparing this year to last. This past year has shown a tremendous acceleration in international leisure travel, due primarily to the favorable exchange rate of the strong Euro compared to the weaker dollar, and Europe continues to be the strongest demand generator in comparison to other international regions. Views on third-party Internet distributors are still mixed, although more respondents plan to decrease their participation in this distribution channel, as the cost effectiveness of a property’s own website becomes more and more apparent. Economic conditions, labor costs, and terrorism are considered the greatest issues to be addressed by NYC hotels in the next few years, while growth in corporate travel and the national economy are perceived to have the greatest effect on the health of NYC’s hotel market in the short term. Although half of the respondents properties do have loyalty programs, the majority stated that the room nights the programs generate do not result in substantial increases in ADR and RevPAR. Most respondents feel the Javits expansion will have a positive impact on their hotel, and the majority will not make changes in light of the expansion.

In summary, the mood of the respondents can be characterized as sound optimism, as 2005 is proving to be better than 2004 with New York City’s hotel market having substantially outpaced the rest of the country, predominantly as a result of the renewed growth of domestic corporate travel. New York City’s hotel market should be mindful that sustained growth will depend upon a continued growth in corporate travel and an improving national economy.