Record-high hotel occupancies have helped fuel a steady
stream of pipeline growth in New York, but recent RevPAR declines suggest that
the Big Apple could be nearing a tipping point when it comes to supply.
"New York City has just over 14,000 rooms in
construction across the market today, and that represents 11.7% of existing
supply," said Alison Hoyt, senior director for consulting and analytics at
STR. "And the market is still absorbing new supply that's recently come
online, which has been a significant amount over the past two years."
According to STR data, the city's pipeline has remained
fairly level in recent history, hovering at between roughly 13,000 and 15,000
rooms under construction. That consistent growth, however, has occurred amid a
period of negative RevPAR performance in the market.
STR reports that New York RevPAR was down in 2015, 2016 and
2017, with 2018 -- when RevPAR rose 3.5% -- marking the first increase in that
metric for the city since 2014.
Eric Jongeling, director of the Solutions Group at CWT, said
the new inventory coming onboard has "really been putting pricing pressure
on the existing hotels."
"Whenever a new hotel opens," Jongeling said, "they're
going to do everything they can to get people to see their property, stay
there, like them and become loyal. And they're really aggressive, which puts
pressure on the legacy hotels to do something similar."
Jongeling added that an increase in midscale and upscale
development has also put pressure on higher-end properties, adding that the
rise of Airbnb and other alternative accommodations has likely also had some
measurable impact on rate growth.
Hoyt expressed similar concerns over sluggish rate gains.
"In the New York market, the peak [average] rate
achieved, on a trailing 12-month basis, was $292 in September of 2008,"
she said. "And since that point in time, the market hasn't been able to
climb back up to those levels."
Meanwhile, despite last year's progress, 2019 appears to
mark a return to dropping RevPAR. STR data indicates that New York saw a steep
7.2% RevPAR drop in the first quarter of this year, followed by a 1.8% decline
in the second quarter. Concurrently, the city's second-quarter average daily
rate slipped 1%, to $271.01, and occupancy shrank 0.7%, to 89.2%.
This year's disappointing first half appears to have put a
damper on the outlook for 2020, with CWT's recently released Global Travel
Forecast report predicting that hotel prices in New York will increase just
0.8% next year. In contrast, Chicago, Los Angeles and San Francisco are
expected to see hotel rates increase by 1.9%, 2.9% and 5.2%, respectively, in
The American Express Global Business Travel Hotel Monitor
2020 report has offered an even more dour projection, forecasting that New York
hotel rates will contract by 3%, year over year.
Michele Mahl, executive vice president at JLL Hotels &
Hospitality, said, "New York has seen softness in 2019 that wasn't
actually anticipated at the end of last year. It really ends up largely being
due to just the supply increases continuing to be impactful. But the
anticipation is that the supply is going to start to be absorbed next year, and
we'll see an improvement in rate. It's not going to be major levels of growth,
but I think the consensus is that the supply should be absorbed."
Mahl pointed to the fact that New York's Local Law 50, which
imposed a four-year moratorium on conversions of hotel rooms into alternative
uses for properties with more than 150 keys, expired earlier this summer,
providing hotels the option to transition into residential or office
developments. According to Mahl, these conversions could help weed out older,
less viable stock and effectively help drive up rates.
Mahl added that investors remain bullish on the New York
hospitality sector, and while supply growth is predicted to taper off somewhat
in the coming year, developers are still very much interested in the market.
"I think from an investment standpoint, New York still
remains one of the strongest and most resilient markets," she said. "Globally,
it's still seen as a safe haven, and we continue to see a large appetite from
global investors. There's still that tremendous pent-up demand for New York,
albeit at pricing levels that are very soft."