Softening since early 2001, the Manhattan lodging market received a crippling blow by the September 11 terrorist attacks on the World Trade Center (WTC). Only after the clouds of dust had cleared was it possible to assess the event�s immediate impact on the borough�s hospitality industry. Occupancy levels and average rates continue to be depressed in comparison to last year due to the slowing economy and a decrease in leisure travel to Manhattan. Through mid-year 2001, RevPAR for Manhattan had already eroded by 10.9% compared to a .4 percent decline nationwide primarily as a result of reduced corporate travel.

Major Demand Changes

The attacks of September 11 rendered approximately 27.5 million square feet, approximately 36 percent, of downtown�s office space uninhabitable. While many displaced tenants hope to move back to Lower Manhattan in 2002, some are considering permanently leaving the downtown area or Manhattan altogether, decreasing room demand over the long term. New office developments in the pipeline, currently totaling more than 12 million square feet, are anticipated to partially offset the loss of downtown office space and lure tenants back to Manhattan.

To restore confidence in traveling and draw visitors back to the Big Apple, numerous tourism promotions surfaced in October and several major hotels and city agencies are offering steep discounts and running extensive ad campaigns. While there has been a resurgence of travelers to Manhattan since the tragedy, NYC�s convention and visitors bureau has not committed to forecasting when visitation to the borough will reach pre-September 11 levels. Despite the Jacob K. Javits Convention Center�s closing for over a month, few conventions have cancelled their events at the Center, with most rescheduling for late 2001 and early 2002. Additionally, several major conventions announced plans to relocate to Manhattan following the attacks to minimize cross-country or overseas travel and to support the city.

Highly dependent on air travel, Manhattan has been especially affected as most major airline carriers are cutting a greater share of flights to New York�s three major airports than the announced 20 percent reduction nationwide. The Port Authority of New York and New Jersey forecasts passenger traffic at the area�s three main airports to total 75 million passengers for 2001, down from the previous year�s record of 92.4 million.  Nonetheless, airport expansion and renovation plans, including the $9.3 billion redevelopment program at John F. Kennedy International (JFK) and Newark Airport�s $800 million expansion will continue. On October 21, 2001, Newark Airport began AirTrain service to create a much-needed link between Manhattan and the airport. The first part of JFK�s AirTrain is scheduled to partially open in 2002 with completion in 2003.  In March 2002, NYC will host the U.S. Track and Field Indoor Championships at the Armory Track and Field Center in Upper Manhattan. The event will generate room demand and strengthen NYC�s bid for the 2012 Summer Olympics. In October, the city was named a U.S. Bid City for the 2012 Olympic Games.

Major Supply Changes

The collapse of the WTC damaged or destroyed four of downtown�s largest hotels, rendering approximately 3.8 percent of Manhattan�s overall room supply unusable. Of the four hotels affected, the Marriott World Trade Center was the only property completely destroyed. Its sister property, the Marriott Financial Center, suffered less extensive damage and announced it would resume operations by First Quarter 2002. The Millennium Hilton�s reopening date has not been determined as the timing is highly dependent upon the cleanup efforts at Ground Zero. Similarly, the Embassy Suites Battery Park City has not yet indicated their reopening dates, although it is anticipated to resume operations in 2002. In response to the steep drop in hotel demand following the attacks, the Sheraton Manhattan in Midtown temporarily converted all of its guest rooms to offices. The property is anticipated to resume its hotel operations in 2002.

In 2001, the following hotels opened or were anticipated to open: 100-room 60 Thompson, opened in January; 77-room Chambers Hotel and 130-room Bryant Park Hotel, both opened in February; 143-room Park South Hotel, opened in June; and the 114-room City Club and 509-room W Hotel Times Square, were anticipated to open in December 2001.

With 3,103 rooms under construction, Manhattan�s lodging inventory is anticipated to increase 5.0 percent through 2005.  Due to softening demand in 2001 and a sharp drop in visitors since September 11, it is unlikely that the market will be able to absorb the new supply, causing a decline in overall occupancy for 2002. As a direct result of September 11, the opening of the Ritz-Carlton Battery Park City was postponed from October 2001 to January 2002. Other hotels scheduled to open in 2002 include: Ritz-Carlton Central Park South, Best Western at 38th Street, Comfort Inn at 36th Street, and Westin Hotel E-Walk. The Mandarin Oriental at Columbus Circle, the Residence Inn at 39th Street, the Broadway at 19th Street, and the Doubletree at 165th Street are anticipated to open between 2003 and 2005.

Political/Economic/Legal Changes

The U.S. congress has proposed the �I love New York� bill to reward consumers with tax breaks on all travel, restaurant, and entertainment related expenses incurred in New York City until the end of 2002. Economic development initiatives were also in the works at the local level as former Mayor Rudolph Giuliani�s eight-year term comes to an end. These programs are likely to be announced in the coming months under new Mayor Mike Bloomberg�s administration.

Michael Fishbin, New York
Georgi Fsadni, New York
Josie Mok, New York 

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