New York is experiencing its biggest hotel expansion in a generation, attracting a host of new brands and developers betting that the good times will continue.
But the race to build or convert dusty properties into modern lodgings already has sparked a debate about whether the additional rooms can be absorbed without putting downward pressure on hotel-room rates by next year.
The number of hotel rooms in Manhattan is expected to rise about 10% to more than 90,000 by the end of 2014, says Jones Lang LaSalle Hotels, which tracks hotel projects planned and under way. Manhattan’s expected lodging growth tops the U.S. by a wide stretch and is more than double the rate of the next fastest-growing major markets, Miami and Washington, according to forecasts from Lodging Econometrics.
The surge in new Manhattan properties?ranging from luxury names such as the SLS Hotel New York to limited-service brands like Best Western?is part of a broad revival in the hospitality industry. It also reflects New York’s pull as a global business center and tourism mecca that is recovering from the economic downturn faster than most cities.
While many luxury retail companies are willing to pay among the world’s highest rents for a prime spot on Fifth Avenue, hotel companies view landing a Manhattan showpiece as important for promoting themselves, lodging analysts say.
Hyatt Hotels?Corp.?H?-0.48%?and a partner, for example, are spending about $375 million for New York’s first Park Hyatt, the company’s top-of-the-line brand. It is slated to open in 2014 in the lower 20 floors of a luxury Midtown condominium across the street from Carnegie Hall.
“That location will help grow the Park Hyatt brand and enable the company to get more hotel management contracts over the next 20 years,” says Ryan Meliker, a hotel analyst for MLV & Co.
New York attracted more than 52 million visitors last year, and the city’s tourism office is projecting an increase to 55 million by 2015. The average hotel occupancy rate this year through August was around 84%, which is above precrisis peak levels, according to Smith Travel Research. Daily room rates also continued to rebound, averaging $238 in the eight-month period, a 4% rise from the same period last year.
Richard Born, principal of BD Hotels, which owns and operates 25 hotels in New York, says he likes the city’s long-term prospects but worries that the wave of new supply could put a damper on the market. He sees occupancy falling beginning next year because hotel supply is expanding 6% to 8% a year, while city tourism is rising at a slower rate of around 4% to 5%.
“That could put downward pressure on daily rates or cause new hotel construction to slow,” he says.
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