Six years hence…where is Manhattan?

As the bellwether market of the U.S. lodging industry, trends in New York City, specifically Manhattan, are watched closely. Coming out of the economic downturn, lodging’s initial recovery in Manhattan outpaced other US markets, but has since lost steam. RevPAR levels in Manhattan declined more significantly going into the recession, and recovered more rapidly coming out of it, but since 2011 RevPAR growth in Manhattan has trailed the recovery in other U.S. markets. In 2013, while the RevPAR levels on a US level surpassed 2007 peaks, Manhattan’s RevPAR was approximately 2.3 percent below its 2007 high (Figure 1).

Focusing on more recent data, Manhattan’s RevPAR growth during the first quarter of 2014 also underperformed the U.S., decreasing 0.5 percent, compared to an increase of 6.8 percent across all U.S. markets. RevPAR recovery in Manhattan has trailed other U.S. markets, in part, due to a significant increase in Manhattan’s lodging supply, which continued to increase at a solid pace through the recession. Between 2007 and 2013, while the lodging supply in the U.S. increased at an average annual pace of 1.4 percent, Manhattan’s increased 3.8 percent, almost three times the national average. This significant increase in supply has created a drag on the operating performance of Manhattan hotels, specifically the ability to increase average daily rates, which continue to be below 2007 peak levels (Figure 3).

Underlying these overall trends, are some important distinctions between the five submarkets within Manhattan. Between 2007 and 2013, Lower Manhattan experienced the largest increase in supply, with over 6,400 new rooms (45 hotels) opening during the period, representing a supply increase of approximately 114 percent. As a result, both occupancy and average daily rate in Lower Manhattan continue to be below 2007 peak levels (Figure 4). On the other hand, RevPAR levels in Midtown South, which experienced a supply increase of approximately 39 percent, have surpassed prior peak levels, driven primarily by an increase in occupancy. The remaining submarkets have experienced varying increases in supply levels since the onset of the economic downturn and subsequent recovery, with2013 RevPAR also trailing 2007 peak levels. Distinctions in the pace of RevPAR recovery within specific submarkets also reflect other submarket dynamics, including the mix of demand, as well as the characteristics of existing and incoming supply, which play a critical role in driving the submarket’s performance, especially in a market as concentrated as Manhattan.

Despite the trailing off of RevPAR recovery, Manhattan continues to be the highest priced and most sought after lodging market in the U.S., with an average daily rate premium of over 35 percent, compared to the next highest priced market (Oahu), but also has a very robust supply pipeline of approximately 18,000 rooms (over 100 hotels). That said, there are important distinctions between Manhattan’s submarkets that lodging developers, operators and brands need to consider as they plan and execute on their growth strategy.