By Roland Li
In Lower Manhattan, the number of hotels have tripled since 9/11, and rooms have increased by 60%, according to the Downtown Alliance.
Despite weathering the worst terrorist attack on American soil — and being the epicenter of the most devastating economic collapse since the Great Depression — Lower Manhattan has become a fertile ground for new hotel development.
This trend may also reflect a sea change in the hotel industry in Manhattan, as hotel developers look southward to a neighborhood that is rapidly changing and growing. The local industry also has to accommodate both tourists and business travelers.
As a whole, Manhattan’s hotel market was hit hard by the market crash. Among the top 25 markets in the country, New York suffered the highest decline in revenue per available room in 2009 with a 26.5% decrease compared to 2008, according to a report by HVS Global Hospitality Services and New York University’s Preston Robert Tisch Center for Hospitality, Tourism, Sports Management.
This plummet was due to hoteliers deciding to decrease the average nightly rate for a room, in order to maximize occupancy in the face of a 5% increase in hotel supply. As a result, the city had 80% occupancy in 2009.
However, since the fourth quarter of 2009, the market has shown recovery, reports HVS and NYU. As a result, occupancy levels and revenue per room have both increased.
HVS believes that the Manhattan hotel market is on the upswing, and by 2013 revenue per room will return to its pre-recession high, and hotel values will again reach the peak by 2014. HVS forecasts a 4.6% increase in revenue per room in 2010, and a 10% increase in 2011.
Mark Gordon, an executive vice president, principal and head of the U.S. Hotel Group at Cushman & Wakefield, agrees with the optimism.
"From a hotel performance perspective, the New York City market is doing extremely well as compared to 2009. We’re anticipating that that strong performance will continue throughout the year," he said.
"We’re definitely seeing improving economic conditions. As corporate travelers return, New York is the No. 1 global destination."
Jim Anhut, chief development officer, Americans, at InterContinental Hotels Group said Lower and Midtown Manhattan has become more attractive to developers because of the "bite-sized" opportunity they present.
"Now, you’re seeing redevelopment and development opportunities being encouraged by the city and being encouraged by attractive opportunities, where people want to stay but historically have not been able to stay," said Anhut.
"We are seeing projects that are being developed that are more modest in capital needs and construction structure. These aren’t 1,000 room hotels, they’re smaller hotels. They’re a little more bite-sized for a developer who’s trying to raise capital."
Part of the hotel recovery can be attributed to Manhattan’s success as a tourist attraction, eclipsing Orlando for the most popular city in the country, according to the HVS study. The city is also an international hub, with international luxury and midrange retailers, with, among others, the only Uniqlo store in America, and it has benefited from international tourists who have taken advantage of a weak dollar. Cheaper room rates and aggressive discounts also drew tourists, but led to the weaker revenue per room in 2009.
The increase in tourism has created the need for hotels to appeal to both tourists and businesses travelers, and some downtown amenities include star chefs, and even a sponsored farmer’s market. There’s also a wide range of prices for both existing and new hotels, from huge, boutique towers to small, affordable low-rises. Recent openings include the 400-room Trump Soho, a condo hotel with rooms that start at $399, to a 32-room Comfort Inn New York in Lower Manhattan.
"Tourism is thriving, both in New York City and Lower Manhattan," said Elizabeth Berger, director of the Downtown Alliance, the area’s Business Improvement District. "Hotel developers are seeing the diversity of the Lower Manhattan market."
Despite the weaker economy, new hotels continue to open, although many started construction before the recession. In 2009, the city gained 2,892 new rooms over 17 new hotels, and it is expected to continue to grow in the next two years, according to HVS’s New York Office.
7,525 new rooms across 31 properties are expected two open within the next two years, with 46% opening in Lower Manhattan, and 41% in Midtown West. Midtown East will have 11% of the new openings, while Uptown will see a minuscule 2%.
Not only are Midtown West and Lower Manhattan strong sources of new openings, but they have also experienced the largest gains in revenue per room and occupancy, according to a report by PricewaterhouseCoopers.
In the first quarter of 2010 compared the to first quarter of 2009, Midtown West had an 11.7% increase in revenue per room, and a 13.9% increase in occupancy. In a comparison of the same time periods, Lower Manhattan had a 14.6% increase of occupancy, and an 11.5% increase in revenue per room. Meanwhile, other neighborhoods had only increases of 2.8% to 4.9% in revenue increase.
On the whole, the hotel market in New York seems to be improving.
"We saw a pretty good spring. I think we’re seeing a solid summer," said Bill Brodsky, a principal at Tribeca Associates, which developed the Smyth, a hotel at 85 West Broadway, which opened in February 2009. "We’re cautiously optimistic about the fall and winter."