News for the Hospitality Executive
|NEW YORK, January, 8 2007 – Manhattan’s burgeoning lodging
industry set new records in 2006, breaking through the $200 revenue per
available room (RevPAR) barrier and eclipsing the peak real RevPAR set
in 2000, according to a report released yesterday by Hotel Investment Strategies,
LLC, a lodging investment advisory firm based in New York.
“By all accounts the Manhattan lodging industry is about to embark on one of its most profitable periods in recorded history,” said Ross Woods, author of the report and Principal of Hotel Investment Strategies.”
Despite tempered growth in room demand over the past two years, hotel operators have enjoyed RevPAR growth rates of 18.1% and 11.2% in 2005 and 2006 respectively, bringing average RevPAR to about $220.
“In the past 24 months the peak RevPAR achieved in 2000 has been surpassed in both nominal and real terms, a unique achievement in the U.S. lodging industry,” Mr. Woods said. “Real RevPAR (inflation adjusted) was up about $1 on real RevPAR recorded in 2000 - $219.51 compared to $218.46.”
“Over the past three years Manhattan’s lodging market has experienced the most spectacular come-back of any hotel market in the nation in recent memory. The unprecedented turn-around in Manhattan’s lodging market demonstrates the resilience of New York City as the world’s leading business center and the professionalism of the City’s lodging industry leaders,” said Mr. Woods.
Manhattan’s lodging industry has enjoyed a record breaking year in 2006,
with average room occupancy at 85.5%, up from 85% in 2005. With room occupancies
nudging their natural ceiling, room rates will continue to grow strongly
albeit at a lower level than previous years. Despite significant turn-away
room demand during the week, operators are set to achieve higher occupancies
over the next couple of years. This will be accomplished by achieving greater
occupancies in the ‘quieter’ periods - trough and shoulder months and weekends.
The performance of Manhattan’s lodging sector is inextricably linked to the growth in real GDP for the U.S. “No other factor has the same influence on the demand for hotel rooms than real GDP.” Mr. Woods said the firm had tested about twenty economic variables, including World GDP, and found that real GDP was the single most important determinant on lodging demand in Manhattan. “Based on our econometric model, we forecast room demand to grow at the compound average annual average rate of 2.9% between 2006 and 2009,” said Mr. Woods.
One of the report’s most surprising findings is that ADR has not been a statistically significant factor in determining the aggregate demand for room nights in Manhattan -- supporting the view that room demand is somewhat inelastic. “Any diminution of demand by price-sensitive domestic visitors has been more than offset by the demand from foreign visitors. They appear to be immune to the price of Manhattan’s lodging because of favorable exchange rates,” said Mr. Woods.
Despite about 3,700 rooms entering the market over the next three years, average room occupancy is forecast to remain in the mid to high eighty percents. “We forecast supply to grow at the compound average annual rate of 1.9% over the period. The room occupancy rate for Manhattan is forecast to decline marginally from 85.5% in 2006 to 85.3% in 2007. ADR is forecast to grow by 6.5% to about $273 in 2007. As a consequence, RevPAR is expected to increase by 6.3% to about $233,” said Mr. Woods.
Mr. Woods said that over the years, investors and developers had struggled to define the long-run equilibrium occupancy rate for Manhattan, the occupancy at which there is no pressure either to increase or to decrease long-run room rates. “We have determined the equilibrium occupancy rate to be 82%, compared with the long-run occupancy rate of 77%. With current occupancies running at about 86%, the market can support about 2,700 additional rooms per year over the next several years without eroding the natural occupancy rate of 82%.
About Hotel Investment Strategies, LLC
For a complimentary copy of the report, please contact Ross Woods by email: firstname.lastname@example.org
|Also See:||Manhattan Hotel Occupancy Increased to 83.2% In 2004, In 2005 Occupancy May Grow to 84.9% / PricewaterhouseCoopers / March 2005|
|Manhattan Lodging Report / Market Segment Analysis / Ernst & Young LLP / Jan 2000|
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