• Americas

Pricing Power Returns to NYC Hotel Market

by Ivan Melendez-Lluch, Director, Hospitality & Gaming, Valuation & Advisory

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New York City’s (NYC) tourism industry has been a major growth driver over the past five years, with total visitation increasing by approximately 20.1% since 2013. According to NYC & Company, NYC’s official convention and visitor’s bureau, 2018 witnessed a 5.5% increase in total visitation, with a record-breaking 65.2 million tourists (up from 61.8 million in 2017). This signifies to the strength and stability of the greater New York City area as a global financial, media, entertainment, and cultural hub which generates high levels of hotel room night demand.


In collaboration with Smith Travel Research, Cushman & Wakefield Hospitality & Gaming tracks six submarkets in Manhattan. These submarkets consist of Uptown, Midtown West/Times Square, Midtown East, Midtown South, Village/SoHo/Tribeca, and Financial District. Click here to download a summary of each submarket.


Since 2015, hotel supply in Manhattan has increased by 10.8% (or by approximately 9,600 units). Due to the significant level of new supply, the average daily rate (ADR) eroded between 2015 and 2017, as new hotel’s offered bargain prices to entice trial and repeat visitation. As a result, revenue per available room (RevPAR) declined marginally. Nevertheless, the Manhattan hotel market achieved an all-time high occupancy of 88.1% in 2018. Evidently, new supply has been absorbed swiftly.

Furthermore, for the first time since 2014, with an overall improved hotel stock and a diminishing supply pipeline, pricing power returned to the market in 2018 as ADR increased by 2.5% and a RevPAR increased by 3.2%. ADR growth was led by the Midtown South submarket, as well as the Village/Soho/Tribeca submarket; which recorded a 2018 ADR increase of 3.0% and 3.9%, respectively. The composition of product by class shifted up-market in these two submarkets, enhancing the aforementioned rate growth. In 2019, with market-wide occupancy approaching 90.0%, hotel operators are expected to capitalize on compression, enabling the market to grow ADR by 2.5% to 5.0%.

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Although pricing power has returned the market, operators will continue to maintain a close eye on demand, with a potential 6,375 additional rooms slated to come on-line in 2019. This may hamper the market’s ability to maximize RevPAR growth; however, many of the potential rooms slated to come on-line will likely be delayed. This notion is supported by the fact that in 2018, only 51.0% of the expected new supply actually opened, and highlights the challenge with anticipating the impact of new supply.

Going forward, operators will continue to work towards minimizing the impact of on-line travel agencies (OTAs) as well as on-line home-sharing services such as HomeAway, AirBnb, and Flipkey, to name a few. Nevertheless, the downward pressure placed on ADR by these channels is believed to be already baked into the system, effectively diminishing fears of increased competition from these channels. Those operators who are able to drive business directly; will inevitably rely less on demand from these channels; enabling the prudent operator to improve rate growth in the near term.

By in large, bottom line performance improved in 2018 led by pricing power which bolstered revenues. Nevertheless, increasing labor costs and real estate taxes have moderated net operating income somewhat. To help offset the increase in operating expenses, many hotels have initiated an urban destination charge (akin to a resort fee) ranging from $25.00 to $35.00 per night. With an average capture rate of over 90.0%, the urban destination charge resulted in a material increase in other income. Accordingly, bottom line performance is expected to improve in 2019.

Over the past 12 months the market has also experienced an up-tick in hotel transactions. Primary drivers include the sale of two luxury hotels; the 452-room Edition Times Square sold for $1.53 billion (or $1,590,929 per room) and the 282-room Plaza Hotel sold for $600.0 million (or $2,127,660 per room). High-quality assets in very good to excellent locations continue to achieve strong pricing. With a diminishing supply pipeline, operators believe the opportunity to grow RevPAR is forthcoming in the next 12 to 24 months. Accordingly, improving hotel fundamentals are expected to fuel the hotel transactions market.

ivan-melendez-lluch-nyc-hotel-valuationIvan Melendez-Lluch is a member of the Hospitality & Gaming practice group within Valuation & Advisory and has experience serving virtually every hospitality property type, including full-, limited-, and select-service hotels, conference centers, resorts, and condominium hotels. His work scope includes appraisals, feasibility studies, market surveys, litigation support, and investment analysis. Prior to joining Cushman & Wakefield, he was a 13-year veteran with Four Seasons Hotels & Resorts.

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