Across major markets in the U.S., city and county governments have been leasing hotels to house the unhoused, refugees and migrants. Nowhere is this trend more visible than in New York City.
As of October, 140 hotels have been temporarily or permanently taken out of inventory and are no longer open to travelers. Over the past quarter, various city and county authorities have secured these accommodations via long-term leases, which in turn decreases future hotel room supply.
The projects are distributed throughout the market — 22 hotels are located in the larger midtown area, 26 properties in the Queens/Brooklyn submarket, and 28 hotels in the JFK/Jamaica submarket. Around one-third of the projects are in the larger New York City Area submarket, which encompasses many outlying areas. Room counts range from the 27-room former MainStay Suites Bronx to the 1,331-room former Row NYC hotel near Times Square. Of the 140 properties, only 66 previously carried brand flags. The formerly branded hotels accounted for around 6,500 rooms. Most of the projects were midscale or economy properties and so the impact on inventory will likely be felt mostly at the lower price points the most.
Even though only 33 hotels are currently permanently closed, there is a possibility that the other projects will never be used as hotels again once the long-term contracts expire. More information about the future status is often hard to come by, in many cases the current owners are not quite sure if the hotel is still viable after the current residents leave.
New York City hotel performance will likely be influenced for years to come. The decrease in supply comes on the heels of the law that makes running short-term rental operations in the market much harder for landlords. The combination of fewer short-term accommodations and fewer hotel rooms may bode well for the existing hotel operators. If the most current room rate increases are a sign, visitors could expect higher average daily rates for the future. Through the first three quarters of this year, New York City ADR was up over 8% year-over-year; in September alone, it increased 13% from last year.
There are currently more than 8,000 rooms in construction. They will come online over the next quarters, on the heels of the 4,000 rooms that opened over the past twelve months. Given recent new rules around zoning and hotel development, it is likely that the supply pipeline, which used to be the largest in the country, will add very few new hotels since those would likely have to be unionized once they open, and that increases the costs associated with running the hotel.
With more than 16,000 rooms taken off-line, curtailed short-term rental inventory and a decreasing pipeline count, the New York City hotel inventory is changing materially. There could be an impact on room rate growth going forward as operators adjust to the new reality of fewer competitors.