HVS International | 2006 Manhattan Hotel Market Overview

Manhattan Operating History & Forecast

Mark Lomanno
President, Smith Travel Research

The performance of New York hotels continues to impress. Overall market occupancies have continued to improve and now rest at about 83 percent on an annualized basis. This level of occupancy is consistent with the peak reached in late 2000 and is driven by strong room night demand growth and a slight reduction in overall room supply. In fact, the supply/demand dynamics have begun to drive hotel performance in the areas outside of NYC, especially suburban New Jersey and Long Island. Mid-week occupancies are extremely strong, averaging just under 90 percent over the past year.

Room rate growth has also been strong with rates up over 14 percent in the last year. While the average cost of a hotel room in NYC is now above levels achieved in early 2001 in absolute terms, when one factors in the inflation rate, rates are still well below what guests paid at that time in real dollars. At the current rate of price acceleration it will still be several years before rates, again in real dollars, reach the levels achieved at the end of the last cycle.

Considering the factors mentioned above, it is a very dynamic time for hotels in NYC. Reduced supply, strong demand, and pricing will likely result in several very profitable years for hotels in this market.

During the first four months of 2003, the uncertainties of the war in Iraq and the negative impact on international travel of the SARS epidemic greatly hampered the Manhattan lodging market's performance. However, market fundamentals started improving in the second half of the year, and strong RevPAR increases were attained in October through December 2003. The combination of an improved economic climate in 2004 and the market's poor performance during the first four months of 2003 resulted in exceptionally strong RevPAR gains in 2004. Due to the continued recovery of the regional and national economies, a favorable exchange rate of the euro against the U.S. dollar, the recent closing of several hotels for condominium conversions, and only moderate supply growth, marketwide RevPAR grew by roundly 18% in 2005, attributable to a 2.2% increase in occupancy and a 15.4% gain in average rate. As the national economy continued to recover, Manhattan's occupancy and average rate exceeded the 2000 levels in 2005.

Based on an analysis of the historical data and a review of proposed hotels and possible closings, we have prepared the following forecast for the Manhattan lodging market.