United States -  New York

Overview:

With a population of over 18 million, the New York metropolitan area is one of the largest urban areas in the world and the largest in the United States. Despite the loss of the World Trade Center buildings, New York has remained at the core of national and international financial dealings and has continued as the global center of corporate headquarters in finance and services, media, entertainment and telecommunications, manufacturing, and trade. The New York City hotel market remains one of the top-performing in the nation, although 2015 was the first year in which market-wide RevPAR performance declined since 2009. Similarly to 2014, the market reacted to ongoing supply increases by maintaining occupancy levels and foregoing average rate growth. Demand grew by over 3%, with occupancy remaining in the mid-80s despite continuous growth in supply; this trend speaks to the strong demand fundamentals of New York City and the market’s historical ability to absorb new openings. However, the impact of significant supply increases over the last few years was reflected by a -1.6% decline in market-wide average rate over that attained in 2014. The perception of increased competition by operators in the market has hindered the ability to achieve rate premiums, particularly in times of compression in the market.
 
We anticipate that the strong demand typical of New York City will likely persist, despite strong supply growth into 2018; occupancy is expected to remain in the mid-80% range. Average rates, which have been more directly affected by market-wide supply trends, are expected to decline further through 2016 and cause RevPAR to decline, as well. By 2017, we forecast minimal RevPAR growth, fueled by a rebound in average rates. After 2018, supply growth should taper; thus, the market’s ability to improve RevPAR gains is likely to improve. As of year-end 2015, RevPAR was still 2% lower than the 2008 peak level. We forecast that RevPAR will return to its previous peak level by 2019.
 
Transaction activity remains strong in Manhattan, with buyers competing heavily for assets, and sellers seeking to maximize their investment gains. High investor interest, particularly from Asia and the Middle East, continues to put downward pressure on capitalization rates, driving hotel values to peak levels. In 2015, transactions of stabilized assets realized capitalization rates around 5%, with capitalization rates on luxury assets as low as 3%. As Manhattan is viewed as the nation’s top gateway city, hotel investors from all over the world consider it to be an essential and low-risk market for their portfolio. Transaction activity is expected to remain high over the next couple of years due to increased interest from investors and the increasing availability of assets for sale.
 
Hotel values declined moderately in 2015, primarily a result of average rate losses. We anticipate that the value of New York City hotels will continue to depreciate in 2016 and 2017, albeit to a lesser extent, as average rate and RevPAR continue to decline. As previously mentioned, by 2018, the supply pipeline should thin out somewhat, which will allow for a rebound in performance and help to boost values. A full rebound in growth is forecast by 2019. With a few exceptions, hotels in New York City are priced above replacement cost. Manhattan remains the top hotel investment market in the U.S. and one of the most attractive in the world.
 
* The HVI is an index, a statistical concept reflecting a measure of the difference in the magnitude of a group of related variables compared with a base period. As such, it is a measure of broad market trends, rather than a conclusion as to the specific value of any asset, and cannot be applied to an individual asset. A good comparison is the Consumer Price Index. While this index provides a reliable measure of the overall rate of inflation in a region, it does not indicate how the price of milk has changed at your grocery store. So how can the HVI be of use to an individual investor? Although the HVI cannot tell you what a particular hotel is worth, it does provide excellent big picture data, indicating which market areas are experiencing positive trends, and thus may present good investment opportunities. The HVI for the U.S. is a measure of the strength of the lodging industry as a whole and, specifically, the hospitality investment market. The HVI for the various identified markets can provide a basis to evaluate and compare different geographic regions. For more insight on the limitations and applicability of the HVI, please read the message on the HVI home page by clicking on the graphic at the top of this page.

Valuation Trends and Predictions:

New York United States
Previous Year -8% (70 of 71) +1% (49 of 71)
Growth in 2017 -5% (69 of 71) +2% (36 of 71)
Growth in next 4 years -2% (63 of 71) +12% (32 of 71)

Change In Value For Market:

New York RevPar % Change

For more information, please contact:

Roland deMilleret, MAI
RDMilleret@hvs.com
  • +1 516 248-8828 (w)
  • +1 516 209-7305 (m)
Chris Fernandes
cfernandes@hvs.com
  • +1 603 305-6834 (w)
Scott Killheffer
skillheffer@hvs.com
  • +1 302 897-9393 (w)