‘The Hump Of Darkness’ Has Passed, But NYC's Hotels Are Particularly Far From The Light
Hotel owners and operators are allowing themselves some moments of optimism as hopeful headlines about infection rates and vaccinations suggest a return to travel in the months ahead. But the damage is already done, and some hotels could take years to recover — if they manage to reopen at all.
“We are looking at it as a late Q3 to Q4 is when the recovery really starts to pick up,” HVS Director Chris Fernandes told Bisnow’s Hospitality Hotline webinar last week. “In terms of longer-term recovery, we are eyeing a return to 2019 [revenue per available room] levels in 2024. Occupancy will be coming back first, closer to 2023."
RevPAR, the industry's leading performance metric, was down by 66% from 2019 to 2020, per STR. About 200 hotels have been closed in New York City since the start of the coronavirus pandemic, and occupancy is said to be less than 40%.
Places like the Roosevelt, the W Hotel Downtown, and Maxwell Hotel have closed permanently, and many more are likely to join them. Meanwhile, hotel bankruptcies are starting to pick up, including two hoteliers in Brooklyn who have filed in the last three months. Just how many hotels make it through will have a major impact on the health of the market in the city, Fernandes said.
“Demand in New York City has never really been the problem, any weakness in performance that we have seen has been supply-induced," he said. "So I think the bigger headline when it comes to New York City isn't if demand will return ... the bigger if is the supply side of the equation. Depending on how many hotels we actually see fall from COVID will really begin to dictate how quickly the recovery can ramp up over the next few years.”
Panelists agreed that the health crisis, with its government-imposed closures and travel restrictions, has been brutal for hotels, but most are now optimistic that a recovery is now on its way, though it may not be swift.
“There is definitely a light at the end of the tunnel,” said Ashley Lin, the director of development and acquisitions at Virgin Hotels. "We are really hopeful about a lot of demand, especially in Southern cities like Dallas and Nashville."
The firm has been close to fully operational since July, she said, and it has not wavered from its plan to find a second location in New York City. Virgin is building a 460-room hotel in Times Square.
"We are past the hump of darkness," she said.
Some are predicting something of a travel boom as the world emerges from the crisis, which will pay dividends to some operators that stick it out.
“It’s highly likely that leisure picks back up fairly quickly,” Pod Hotels Head of Acquisitions Rani Gharbie said. "There is a pent-up demand, there is a term for it: ‘revenge travel.’ Folks will start traveling fiercely on the leisure side."
Hotels geared toward younger people will see more activity first, he said, but business travel may have a longer wait until things stabilize.
“The sensitive side of the equation is the corporate side, when it comes back, and to what degree it comes back," Gharbie said.
Lin expects business travel to return in the latter half of 2021, though luxury leisure will take up much of the demand over the next 12 months.
“I think you are really going to see for the next three to five years, you are still going to look at the 'hybrid' events ... where it's really partial in-person attendance," she said.
That picture paints a particularly challenging recovery for a market like New York City, which was already in a challenged position on the supply side, even before the virus wreaked havoc on the market, and which relies heavily on business travel.
"New York is going to be tough in the short term. If you look at prior to COVID, New York had three or four years flat of RevPAR growth while expenses were growing above inflation, and that meant a challenging operating environment,” said Sydell Group Chief Investment Officer Matthew Livian, whose company holding includes the NoMad Hotel. "I think people would be surprised at the number of hotels in New York in 2019 that generated very little or negative [net operating income]."
New York City real estate across the board is grappling with a longer recovery than the rest of the country because of the significant outmigration — and how temporary it is. Few companies have brought their workers back to their desks, meaning many office buildings in the city remain empty. Widespread quarantine requirements in the state of New York remain a major impediment to visitors coming back.
Still, panelists believe the city will ultimately see the city return to its pre-pandemic glory from a tourism perspective, even if it's later than in other markets.
“New York just has it. Whatever it is, New York has it,” Fernandes said. "That is something that is impossible to replicate. Folks are always going to want to come to New York."