There's limited room at the inn in New York, and rates are rising

Listed under the definition of supply and demand in any business textbook should be the following words: “See New York hotel market.” It's a classic case study. The occupancy rate in New York City this year is running slightly under 85%, and in some peak periods is much higher. Last year, 22 million room nights were booked in the city, an increase of 600,000 over the previous year.

Meanwhile, supply has dipped by a few thousand rooms over the past two years — largely the result of residential conversions — and now stands at 65,000, according to John Fox, senior vice president of PKF Consulting and director of the New York office. “When a city runs occupancies in the 85% range, that is leaps and bounds higher than any other market. By definition, it's full most of the time,” says Fox.

Those statistics explain why in early June I encountered such huge difficulties booking a hotel room on relatively short notice. Not only were some of the prices outrageously high, there was almost no availability. After scouring several web sites and placing phone calls to our travel desk at Prism Business Media, I reluctantly booked a room for nearly $400 per night — and there was no mint on my pillow. The other option would have been to pay approximately $200 per night to stay near the airport, but that wasn't feasible because I needed to be in Midtown to attend a trade show.

The good news is that New York City will add nearly 5,000 new or renovated hotel rooms to its current inventory by the end of 2007, according to NYC & Co., the city's tourism marketing organization. Several limited-service and select-service hotels under development in the corridors outside of Midtown are adding a number of more moderately priced rooms to the supply, says Fox. “I think that it's good for the travelers, and good for New York. Publicity about $600 room rates can be counterproductive,” he says.

Ironically, while the hotel outlook nationally is bright, in real dollars most owners and operators are still 20% behind the performance of 2000 largely because of rising expenses, concluded Mark Woodworth, president of PKF Hospitality Research, in a recently released study on the state of the industry. Utility expenses rose 13.6% from 2004 to 2005, while labor costs rose 5.1%.

“For those property owners that have been riding the ups and downs of the lodging cycle since 2000, their smile will not totally return until real profits have fully recovered,” said Woodworth, “which might not be until the end of the decade.”

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