Cutting up NYC: The Story of a Market Realignment

HENDERSONVILLE, Tennessee—Every year HNN’s parent company, STR, looks over the 162 markets and 630-plus submarkets (we lovingly used to call “tracts”) and tries to see if the additions and closures of the local hotel areas should change our local market definitions.

Normally we do so with little fanfare because it is not exactly breaking news if we break out one submarket into two somewhere in America—the hotel density allows it.

That said, when we look at New York City and change the way that the data is reported, it is worth noting because New York City is the fourth largest market in our universe and makes up 2.5% of total demand in the United States. In addition, the majority of publicly traded companies have one or more hotels in the city, and those hotels normally charge in the highest percentile of the respective brand system.

Over the last few years, New York City has seen a disproportionately strong increase in room supply. In January 2000, we counted 361 hotels with 76,000 rooms. At the end of 2015, that number had swelled to 662 hotels with about 117,000 rooms. This equates to an increase of 14 million available roomnights in 15 years. And, as most observers are aware, there are 14,000 more rooms under construction in the greater New York City market.

The increase in new rooms allows STR to look over the existing market map and make some adjustments, which we want to share with you. The changes have been presented to owners and operators in New York City prior to being finalized and were judged to be sound additions to the way we report on the city’s submarkets.
To begin with, we deleted some outlying areas and redefined the submarkets that comprise Manhattan as follows:

Removed Rockland/Westchester, NY Submarket from NYC Market:

• The areas are geographically far away from NYC with some properties up to 50 miles away from Manhattan and outside the NYC city limits.
• It is a relatively rural area compared to urban NYC.

With the exclusion of Westchester from New York City, we saw the opportunity to create a new market:
Lower Hudson Valley:

• The Rockland/Westchester submarket will be moved into a newly created Lower Hudson Valley market.
• The new Lower Hudson Valley represents a popular weekend getaway for New Yorkers but also is an important technology business area and part of the transit corridor between New York City and Albany, New York.

Of course that poses the question of historic data comparability. How big is the impact of the change on the existing data set? It turns out the new average daily rate and occupancy are not materially different from the old, as the following table shows:

Because of the addition of new hotels we are able to change the submarket count and create some new, better-defined submarkets on Manhattan and beyond:

Manhattan:

• Six submarkets instead of three allow us to better reflect the recent supply growth in lower Manhattan.
• New boutique hotel centric Village/Soho/Tribeca tract shows the second-highest ADR in Manhattan only behind the luxury-heavy Uptown submarket.
• Properties between 24th and 36th Street, currently part of the Lower Manhattan submarket, now are grouped in new Midtown South submarket to better reflect their Midtown location.

Outer boroughs:

• More than 110 participating properties in total allows us the opportunity to create several distinct submarkets.
• A new submarket covering the East River banks in Brooklyn and Queens has more than doubled in supply over the last five years. With a 12-month-moving-average ADR of $169, it stands out from the rest of the outer boroughs.
• Two new submarkets covering the sixth (JFK) and 20th (La Guardia) busiest airports in the U.S. allows us to offer more insight into those markets with their predominantly branded select-service properties.
• Having a non-contiguous New York Area submarket is not ideal; however, the properties in those areas are similar in accommodations to the hotels found in south Brooklyn and Staten Island. Additionally, these submarkets have similar ADRs: Bronx, ADR of $125.99; Staten Island, ADR of $126.31; and South Brooklyn, ADR of $131.39.

Source: STR
Here are the performance metrics for the new submarket:

In addition, we were able to redraw the lines of the outer boroughs as follows:

These changes took place before the processing of January 2016 data around 17 February.

We hope you agree that the new submarket definitions allow for better insights into the performance and workings of Manhattan and New York City hotels in general. We will monitor the influx of new rooms and over time will make more changes to the submarkets to allow for an even more detailed look at the submarkets.