HSMAI Luncheon - October 2008

Yesterday I presented some data on the New York City hotel market at a luncheon for the New York City chapter of Hospitality Sales and Marketing Association International. While not a formal speech, the following notes summarize my comments.

Much has been written about the drop off in the hotel business during the first half of October. The following chart visually presents the trend line in room revenue per available room in Manhattan over the past few years up to mid-October.

Part of this month's drop off in RevPAR is due the fact that Rosh Hashanah was in October this year, whereas it was in September last year. It appears that part is also due to a sudden drop in corporate travel as companies dealt with the upheaval in the financial markets. It will take hotels a short while to replace corporate travelers with tourists or group meeting customers, but it appears that most hotels will be able to effect such a change. Many hoteliers report that the fall and holiday periods look strong, so we do not expect the decline seen during the first half of October to signify that the market has changed for good.

I also presented an updated pipeline summary that is cleaned up from earlier presentations. This table is for the 5 Boroughs of Manhattan and does not include close-in suburbs normally part of Smith Travel's pipeline reports.

There are roughly 23,000 rooms planned but not under construction for NYC. According to Smith Travel Research, 22% of hotels in final planning don't get built on average, 54% of hotels in planning don't get built, and 72% of hotels in pre-planning don't get built. I suspect these attrition rates will be higher now, since the market for hotel construction financing has been severely affected.

Finally, I presented data for average daily room rates and hotel profitability to show how New York hotels have performed when inflation is taken into account. The following two charts tell the story. Hotel room rates are only slightly above where they were in 2000 on an inflation-adjusted basis, and hotel profitability is still only about 85% of what it was in 2000 on an inflation adjusted basis. Hotels have seen certain expenses, such as labor, food costs, utilities, and insurance rise faster than inflation, eroding profitability.