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Desperately Needed NYC Hotel Recovery Could Be Prolonged By 22,000-Room Construction Pipeline

The Big Apple’s hotel industry has been battered and bruised over the past 16 months, and a deluge of supply set to hit the market this year will likely only slow its recovery timeline. 

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

Many of the city's hotels are still temporarily shuttered, while the ones that are open are bringing in less than half of the revenue they did in 2019 on average. Some hotels have seen significant drops in value, and some have been sold at nearly half of what they were bought for just a few years ago.

In the months to come — even amid optimism surrounding an expected tourism bounce back with the return of Broadway — the city will have to overcome another huge hurdle: the thousands of newly constructed hotel rooms that are set to hit the market.

More than 8,000 new rooms are expected to open before the end of the year, and almost 22,000 are under construction — the most in the U.S., and more than triple the second-place city, Los Angeles, according to hotel research firm STR. 

“It is huge, it can't be overstated,” Hotel Association of New York City President and CEO Vijay Dandapani told Bisnow when asked about the impact of the impending supply. 

While the near-term supply is a challenge, hotel owners wary of all the competition could get relief in the form of a controversial bill being debated in the New York City Council.

The City Planning Commission held a hearing Wednesday on the bill, which would effectively constrain supply by requiring city council members to sign on to a new project, a move that could curb the development of up to 62,000 new rooms, Crain's New York Business reported. The move has prompted outrage from key figures in the commercial real estate industry, but many current hotel owners say it will help move the recovery for existing hotels forward. 

On top of rooms in the construction pipeline right now, an estimated 20,700 are temporarily closed as of Thursday, according to the HANYC. While some closures could become permanent, that is thousands of rooms not drawing in guests today that would add to the city's supply, making it harder for anyone to raise rates.

“If it was just those 8,000 rooms [opening this year], it would be absorbed. But it's not just the 8,000 rooms,” BD Hotels co-founder and CEO Richard Born said. “The question is going forward, what is going to be the pace of the number of tourists coming into the city, and how will that translate to higher occupancy or not based upon how many hotels open?"

"As we stand now, we would have to have a massive increase in the number of tourists ... over today,” Born added.

While domestic travel has recovered this year, international tourism, which typically makes up around 20% of the city's hotel market, has barely returned at all, Born said. Overall, New York City is expected to host about 36.1 million tourists, the city’s tourism and marketing organization New York City & Co. told The New York Times last month. That number, while up from last year, is nearly half of the 66.6 million tourists that came to the city in 2019.

“I think you're gonna probably have a balance,” Born said. “But the balance, it's not a good outcome, because the balance simply means that the occupancies can go up a little bit, and maybe rates can go up a little bit, but not hugely, and we need it to go up hugely. We need it to double.” 


The current financial situation for hotels is dire. New York City is among seven cities that the American Hotel and Lodging Association classified as in a depression in a report released last week. Between May 2019 and May 2020, revenue per available room, the hotel industry’s leading performance metric, dropped 62% in New York City, according to STR

RevPAR in the city was $128 for the week ending July 10, Dandapani said, $85 less than RevPAR in July 2019, which was $213. Between tax payments, fixed costs and decreased cash flow, no one is making money, he said. 

“It's not possible for any hotel in the city right now to be profitable,” Dandapani said. 

Born said occupancy numbers in his Downtown hotels are above 70%, significantly higher than his Midtown properties, which are between 50% and 60%.  

“It's a little bit of a tale of two cities,” he said. "[In Midtown], not only are we saddled with, let's say, late 50s occupancy, but we're also saddled with rates that are potentially 30%, 40%, 50% lower than they were in 2019 pre-Covid. So that the total revenue per occupied room is probably down 65% to 70%.” 

As hotel lenders have sought to work out mortgages with distressed owners, their appraisals have revealed the depths to which values have fallen in the city's hospitality market. Of the two dozen hotels backed by CMBS loans that have had an appraisal since the pandemic valuation, they saw their values drop an average of 34%, according to a Trepp analysis. 

While cities like San Francisco, Boston and Washington, D.C., saw even higher RevPAR declines, their supply pipelines are nowhere near that of New York City. The Big Apple's 21,878 rooms under construction makes up 11.5% of the entire nation's near-term pipeline.

“New York City is positioned for a post-Covid supply boom,” STR Senior Vice President of Consulting Carter Wilson wrote in STR's construction report. “As all this supply enters and re-enters the market, it’s definitely going to add pressure to recovering occupancy levels.”

JLL Hotel & Hospitality Group Senior Managing Director Jeffrey Davis disagrees that the supply set to hit the market will stymie its recovery. The rooms expected to close permanently, a number that could reach up to 25,000, and the rooms that are temporarily closed will likely offset this, he said. 

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

“The impact of that new supply is going to be a lot less impactful, given the fact that we're seeing so many hotels that probably won't reopen in the near term,” Davis said. “I don't think that the supply that's coming online over the next couple of years is going to be meaningful with respect to New York's recovery at all.” 

Experts predict that the recovery will be slow regardless. Full recovery to 2019 levels isn't likely to happen before 2025, according to CBRE

“The recovery is going to be slow, much slower than, say, the airline industry or even the cruise industry,” Dandapani said.

This recovery standard is only accounting for expected tourism rates and RevPAR — owners' bottom lines will likely take even longer to climb back up to their pre-pandemic level, Born said. 

“It will hit the revenue numbers, not the profitability,” he said. “If you compare 2019 to 2025, that is a six-year time difference, and during those six years, our operating costs will be up by about 20%.” 

Between now and then, experts will be closely watching expected recovery markers, such as Broadway’s reopening in the fall and the return of international visitors.

Davis predicts a rebound in the fourth quarter of this year, which he expects will boost investment sales, he said. 

“When we start to see more of those data points come in on performance, it is going to begin to draw the attention of capital back to this market,” he said. 

Increasingly, when the city hits those recovery turning points, the impact of new supply will ease, Dandapani said. 

“Supply is dynamic,” he said. “The moment the spigot starts to reopen — the spigot of business travelers, the spigot of conference business and the spigot of international travel — once you have all these things reopening, it's gradual, but the supply will be less daunting than it is today.”