New York City's hotel sector is showing great strength in the post-pandemic world. In fact, the metro area's 12-month occupancy of 84 percent and average daily rate (ADR) of $313.39, ranks the city first among the 25 hotel markets in the nation, as of the third quarter of 2024, according to an analysis by Cushman & Wakefield, citing data from CoStar.
While the fundamentals were strong, they could even get better for local hotel operators based on three positive market factors, according to Cushman. This includes closures of hotel rooms, a zoning and special permitting process that was recently implemented, and tougher rules imposed on short-term rentals.
Ever since NYC's Council approved the zoning text amendment in 2021, it's become tougher for developers to expand a hotel and build in the metro area due to the mandate of special permits, said Cushman. As of October 2024, just 8,000 rooms were under construction, a 49 percent decrease compared with the middle of 2020. Plus, the elevated interest rate environment hasn't helped either, resulting in higher financing costs for construction. Cushman warned it expects developments for hotels to remain "constrained for the foreseeable future."
Regulations are often not ideal for CRE landlords, but hotel operators aren't losing sleep over Local Law 18, which bars booking platforms like Airbnb from making money off of unregistered rentals, and requires short-term rental hosts to register with the Mayor’s Office of Special Enforcement.
"Skift, a prominent travel news provider, recently highlighted data from AirDNA showing that Airbnb listings for stays of 30 days or more dropped by 83% from July 2023 to July 2024," reducing the number of listings from 21,900 to 3,700," Cushman wrote.
"This will likely boost hotel rates, especially for weekend leisure travelers and during peak demand periods. AirDNA also reported a surge in short-term rental listings in New Jersey. Pre-COVID, Manhattan hotel operators often cited the short-term rental economy and new hotel supply as factors for rate erosion. The recent reduction of this “shadow” inventory is expected to support ADR growth going forward."
Less supply is always a good thing for CRE operators as that only leads to more demand. Currently, NYC has 43,650 hotel rooms either permanently or temporarily shuttered — 35 percent of them are located in Manhattan. Cushman expects most of them to remain closed, with some getting opportunities for conversions into other asset classes such as residential, student housing, or even office.
In addition to the three factors, Cushman listed a nonmarket-specific one — and that's growth in travel. NYC visitations are expected to hit 68 million this year, up from the anticipated 64.5 million in 2024, according to NYC Tourism and Conventions.
However, Cushman did warn of a couple of issues that could lead to some problems. One is union labor, which is more costly, and hotel casino development, where 10 proposals are under consideration. Both could lead to lower room rates, higher operating costs, and more supply. But generally speaking, Cushman is bullish about the city's hotel sector.
"Overall, the interplay of these factors suggests that the hotel industry in New York will experience a period of robust pricing power, benefiting from the limited availability of rooms and sustained demand," the CRE firm said.
"While certain elements such as rising operating expenses and the introduction of new supply from casinos may pose challenges, the current environment and market’s outlook appear favorable for hotel owners and operators alike.