Before the pandemic, New York City was the hotel market that was too successful to fail and its performance numbers were the envy of many hoteliers around the country. While the pandemic didn’t completely KO the market, it certainly was brought to its knees—along with every other market. NYC has been clawing its way back since then, trying to regain its prepandemic dominance.

There are a lot of plusses and minuses for the city, according to Daniel Lesser, co-founder, president and CEO of LW Hospitality Advisors as well as co-founder and managing director of Lodging Analytics Research & Consulting, including the high level of supply on the negative side versus the strength of leisure travel on the positive. But New York, like the majority of the industry, did one major thing right during the past (nearly) three years. “They didn't just cut rates to try to put heads and beds, which has always been what's happened in the past,” he said. “The industry did a good job maintaining rate integrity. And so when the rebound started happening, they started out at a higher platform—or level, if you will—for the rise than previous downturns.”


New York City’s hotel operating fundamentals continued to post strong recovery in Q4, with September and October revenue per available room exceeding 2019 levels, according to Romy Bhojwani, director of hospitality market analytics at CoStar Group (STR’s parent company).

“The recovery continues to be driven by strong average daily rate,” he said. “NYC’s September ADR was $358, which represents a 117 percent recovery to 2019, while October in ADR was $339, representing a 114 percent recovery to 2019. These were the best September and October ADRs on record.

The third quarter marked the first quarter of positive U.S. gross domestic product growth in 2022, with growth of 2.6 percent, but the disappointing economic activity has not impacted lodging fundamentals as much as might have been expected, according to a recent LARC report: “U.S. RevPAR was up 17 percent in 3Q-2022 on a year-over-year basis, driven by a 12 percent increase in ADR and a 5 percent increase in occupancy. Additionally, 3Q-2022 RevPAR was also 12 percent above 2019 levels driven by ADRs that were 16 percent above them. That increase relative to 2019 improved from the 2Q-2022 level of 11 percent.”

While ADR has continued to exceed 2019 levels every month beginning February, occupancy recovery has also accelerated in recent months, Bhojwani said.

“Occupancy in New York City recovered to 96 percent of 2019 levels in September and 93 percent of 2019 levels in October. This is the highest monthly occupancy recovery since the onset of the pandemic,” he said. “At the current pace of recovery, NYC’s hotel market is poised to achieve its best fourth quarter performance on record.”

Supply Shifts

“There's still a fair amount of supply that's coming online. That's the bad news,” according to Lesser. “The good news is that once this current wave is opens and is absorbed, [we’re] probably not going to see new supply for quite some time because of the new legislation where you need a special permit to build a hotel anywhere in the five boroughs. So that's going to put a real damper on new construction.”

The new legislation, Bhojwani added, will give the hotel workers union leverage to block the development or ensure that the hotel is unionized.

Lesser said it’s important to look at the net additions to supply because a number of NYC hotels remain closed, some permanently.

“Supply growth has been unprecedented with the market adding 10,035 rooms from January 2020 through September 2022, which equates to an 8.6 percent increase in supply,” Bhojwani said. “Conversely, 10,404 rooms (8.9 percent of inventory) remain closed since the onset of the pandemic. On a net basis, the market’s inventory is down approximately 400 rooms compared to [year-end] 2019.”

According to Bhojwani, there are 76 hotels and 11,985 rooms under construction in New York City, which equates to 9.4 percent of existing inventory. He agreed with Lesser that the new legislation will have a chilling effect on construction.

“NYC leads all U.S. markets in terms of rooms under construction as a percentage of existing supply. The majority of these projects were planned and financed prepandemic,” he said. “Elevated construction costs will impact the pipeline moving forward, in addition to recently passed legislation that makes the hotel development approval process more difficult going forward. The forward pipeline—i.e., projects in planning phase—is comprised of only 18 hotels or 2,626 rooms.”


Year to date through the end of the third quarter, there were nine major transactions in New York City, according to LW Hospitality Advisors, including MCR and Island Capital Group’s purchase of the 1,780-room Sheraton New York Times Square for $373 million, or $210,000 per guestroom.

“I find that a very interesting transaction because that's a big box hotel, right in a major urban market. One of the categories of hotels that got hit the worst during the pandemic—big box hotels in downtown urban cores,” Lesser said. “There's definitely some [thought needed] to figure out OK, what do we do with this property? Where's the upside? How do we create additional value? Because that's what every hotel investor’s objective is, I don't know what the answer to that question is vis a vis the Sheraton Times Square … but you couldn’t replicate it for anywhere close to $200,000 a key. I don’t see a whole lot of downsides at that basis.”

The increasing cost of debt and general market uncertainty have caused challenges in terms of pricing assets in the market today, Lesser continued, including a widening of bid-ask spreads and a slowing of transaction volume. In addition, the industry is seeing select trades taking place at discounts relative to recent highs. One such deal is the Hilton Times Square, which Apollo Global Management and Newbond Holdings bought in September for $85 million. The 478-room hotel previously traded in March 2006 for $243 million—a 65 percent discount. The hotel, which closed in April 2020, reopened in November 2022.


Despite the mild recession that is forecast for 2023, NYC’s hotel market is expected to continue to perform well next year, with several lagging segments such as group, business travel and international travel still in the middle stages of recovery, according to Bhojwani.

“CoStar/STR’s forecast for NYC’s 2023 RevPAR is +2.5 percent above 2019 levels, with growth primarily driven by ADR at +12 percent vs. 2019. In 2024, RevPAR is forecast to grow 13 percent relative to 2019, with occupancy still at -3 percent and ADR at +16 percent compared to 2019,” he said. “Over the next couple years, RevPAR growth will be driven by ADR and the return of lagging segments (group, business transient and international inbound), which should help provide more compression in the market and increase pricing power. Occupancy will still be below 2019 levels as the market continues to absorb unprecedented levels of new supply.”

Lesser agreed, saying that strong leisure demand will support a continued robust lodging recovery into 2023.

“However, outsized exposure to corporate transient demand, along with elevated supply and expense growth, will ultimately catch up with the market as pent-up leisure demand wanes,” he said.

According to the LARC report: “Top-line fundamentals will decline in the later years of our forecast, driving hotel [earnings before interest, taxes, depreciation and amortization] erosion. By 2026, hotel EBITDA will be 7 percent below 2019 levels, which, along with cap rate expansion, will drive hotel values to be 10 percent below 2019 levels.”

Other predictions by Lesser and LARC:

  • Cap rates are expected to end 2026 expanding 30 basis points more than the national average relative to 2019.
  • Hotel values over the next three-year and five-year periods are forecast to increase by a compound annual growth rate of 6.9 percent and increase by a CAGR of 2 percent,
  • Moving forward, industry growth will need to be fueled by the corporate and group segments, which can be sensitive to economic downturns, creating a considerable amount of uncertainty heading into 2023.
  • Both domestic and international tourism snapped back in 2022 and offer promise for a continued economic recovery across the market.

While the market has recovered well on topline/revenue fronts, increased costs and inflation will continue to impact profit margins going forward, Bhojwani said.

“In addition, hotels with floating-rate debt have increased debt service due to the higher interest rate adjustments this year,” he said. “Through YTD October, gross operating profit per available room has recovered to only 75 percent of 2019, levels putting significant cash flow pressure on assets with floating rate debt. More distress can be expected in the near-term; CoStar’s [commercial mortgage-backed securities] data has 21 hotels in special servicing and 28 hotels on the watchlist.”