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'Not Out Of The Woods Yet': NYC Hotel Market Is In For A Rough Start To 2021

2020 may be over, but the pains of the coronavirus pandemic that have ravaged the hotel sector in New York haven't gone away.

The iconic Plaza Hotel on Fifth Avenue, one of the scores of hotels to close temporarily amid the coronavirus pandemic.

Even with the start of vaccine distribution nationwide, it is unlikely that business travelers — the industry’s bread and butter — return in great numbers this year. Tourism isn't expected to rebound until April at the earliest. Even when these key drivers of the hotel business begin to pick up, it will be years before the market is likely to reach its pre-pandemic levels. 

“The current headlines are all about vaccines, which is obviously a positive,” said STR Senior Vice President Jan Freitag, who is the head of lodging insights for North America. “But we’re definitely not out of the woods yet.” 

With 58% of the city’s hotel rooms temporarily closed, according to PwC, the sector has been largely on pause since the coronavirus took hold of the city last March. Even though fewer than half of NYC's hotel rooms were open, occupancy was just over 47% between January and November, down nearly 45% from 2019, according to STR.

Roughly 20% of NYC hotel rooms could close permanently, The Wall Street Journal reported last year. Already, hotels such as the W Hotel at 8 Albany St. and the Maxwell Hotel at 541 Lexington Ave. have shut their doors for good. Earlier this week, Sunstone Hotel Investors gave its 478-unit hotel, the Hilton Times Square, back to its lender after announcing it would not reopen, The Real Deal reported.

Hotel employment, which makes up 9% of the city’s overall jobs, was down 82% in 2020, going from 18,840 employees in March to only 3,329 in September, according to a December report from the Hotel Association of New York City. With business travel and conferences at a near halt, front-line and essential workers replaced business travelers and tourists as the primary guests in New York City hotels.

While 2021 is likely to be more fruitful than 2020, it will get off to a brutal start. As coronavirus cases around the world surge to record highs, revenue per available room, average daily rate and occupancy will all likely be worse at the start of 2021 than at the end of last year, Freitag said. 

Revenue per available room, an indicator of the health of the sector, was down by 66% from 2019 to 2020. Freitag projected NYC RevPAR will jump 50% this year over last, but that wouldn't come close to making up the losses of 2020.

The W Hotel at 8 Albany St. in downtown Manhattan, which has permanently closed.

New York’s hotel industry is like a four-legged stool, said Vijay Dandapani, the president and CEO of HANYC. It relies on a quartet of guest types: tourists, business travelers, conferencegoers and those coming for conventions.

Tourism is expected to grow alongside vaccination numbers. By late spring and early summer, these numbers are expected to tick up, according to research by the city’s tourist partnership, New York City & Co., which predicts 38.2 million tourists this year, a far cry from the 66.6 million tourists that visited the Big Apple in 2019.

“If the summer of 2020 taught us anything, [it] is that the average American is looking to get back on the road,” Freitag said.

Business travel will also be slow going, he said. It is unclear when people will feel comfortable gathering again and whether remote work will have a longer-term effect on this portion of the recovery. HANYC is expecting that business travel won't come back until Q3.

“The bar to put somebody on a plane [for business travel] is suddenly much higher,” Freitag said. “Leisure travel will lead this recovery … [but] group travel must recover in order for the hotel industry to recover.” 

Nationwide, big business events, typically scheduled years in advance, are expected to slowly start small and regional gatherings in the second half of 2020, according to meetings news analysis and research company Meetings and Conventions. 

The largest convention center in New York City, the Jacob K. Javits Centerwhich hosts nearly 175 business events in a normal year, does not have an event on its calendar until late April, with only nine events scheduled for all of 2021.  

“There were hotels in New York City built because of the business coming to Javits,” Virgin Hotels Chief Development Officer Allie Hope said. “So the lack of demand is going to have an impact.” 

Since leisure travel will be the first to come back, certain sectors of hotels will likely outperform others, Hope said. There will be consolidation, strategic partnerships and “the cream will rise to the top,” she said. 

Hotels that usually get the majority of their business from tourists, particularly domestic travelers, will likely be the first to come back, said Rani Gharbie, the head of acquisitions and development for Pod Hotels, which targets younger tourists.

Ultimately, meaningful recovery for the sector will come as people feel safe, a timeline variable that remains the biggest unknown. Many hotels won't make it until that point. Operators that do survive will be ones that are well-capitalized and “can cut deals with the city and with lenders” until the demand starts to pick up, Dandapani said. 

“Everyone saw 2021 ultimately being stronger than it is now expected to be,” Hope said. “The planning [for the next steps] is happening in real time.”