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NYC Hotel Performance Hit An All-Time High In 2023. Investors Are Paying Attention

New York City’s hotels, fresh off a pandemic-fueled existential crisis, reached new heights last year, beating revenue records and drawing more investment as new city policies have limited competition.

The Hyatt Centric hotel on East 39th Street was one of the 34 New York City hotels that changed hands in 2023.

In 2023, average revenue per available room at New York City hotels hit a new all-time high, up 18% from 2022 and 15% from 2019, according to a new report from JLL.

RevPAR, the industry's leading performance metric, in New York City reached $245.77 last year, 144% higher than the U.S. average, according to hotel research firm STR. The previous RevPAR record in the city was $234.46 in 2007, per STR data compiled by JLL.

New York City’s hotel occupancy rate reached nearly 82% last year, above the national average of 63%. The average daily rate was $301.22, another all-time record and nearly twice last year's national average of $155.62 nationally, according to STR

There were also $3.3B of hotel sales transactions last year, rising 56% from the year prior, according to JLL. The sales volume, spread across 34 properties, was the highest total since 2016.

Big-ticket sales included the Qatar Investment Authority's $623M purchase of the Park Lane Hotel, and McSam Hotel Group selling six hotels for more than $650M combined.

The rise in transactions stood in stark contrast to the rest of the commercial property market. NYC sales transactions were down 55% last year.

Domestic and international tourism are up, with 70 million visitors expected to come to the city in 2024. But that isn't the only factor expected to boost hotel profits in the near term.  

Stephany Chen, executive vice president of JLL’s Hotels and Hospitality Group, said regulations that make it more difficult to build, coupled with the high cost of construction, are driving down competition, enticing buyers to the negotiating table.

“I think investors are wanting to try and step in now ... and really want to benefit from that recovery story and ride that upside,” Chen said.

Developers added more than 21,000 hotel rooms to the city between 2015 and 2019, which is a 40% increase from the prior five years, according to the Department of City Planning.

That spurred the 2021 passage of the Citywide Hotels Text Amendment, which made it so that all new hotel projects in commercial, mixed-use and certain other districts require the City Planning Commission’s approval. 

The added layer of red tape, combined with inflation, drove hotel development costs to their highest point in history last year at $796K per key for full-service hotels. That’s 22% higher than the cost of acquisition, according to JLL. In 2015, the average hotel room was 48% cheaper to develop than it was to acquire.

Those dynamics won’t last forever, said JLL Global Head of Hotels Research Zach Demuth. 

“My belief is that it's short-to-medium, 18 to 24 months, which means now is really the optimal time to acquire,” Demuth said. 

The hotel pipeline is expected to grow at an average annual rate of 1.6% over the next three years, approximately half of the average growth rate the city has experienced over the past decade.

Additionally, 16,000 rooms have been removed from the market to house asylum seekers, according to JLL, and the city is still looking for more buildings to serve as shelters.

New York City hotels are also expected to revel in their first full year under Local Law 18, which places restrictions on short-term rentals, like Airbnb. As many as 70% of the city's short-term rental supply could disappear, JLL researchers estimate. As a result, hotels may gain the equivalent of 2.2 million room nights and $380.4M in revenue this year, surpassing previous recovery forecasts.