According to JLL Hotels & Hospitality‘s NYC State of the Lodging Industry report, New York City RevPAR, driven by the highest ADR in the market’s history, reached historic heights in 2023, exceeding 2019 levels by 15.2%.
Other key takeaways from the report include:
Strong market fundamentals: NYC RevPAR led top-25 U.S. markets in 2023
- Expect continued growth in 2024 underpinned by the resurgence of international travel (China’s group travel ban was lifted in August 2023) and the re-emergence of group and business demand
Favorable supply outlook: Zoning changes & short-term rental restrictions to benefit existing hotels
- Following a decade of historic growth, NYC hotel supply is expected to grow at an average annual rate of 1.6% over the next three years, 140 basis points less than the prior 10-year average. This deceleration of new supply is driven by the recent Citywide Hotel Text Amendment, rising construction costs and challenges with development financing.
- The existing NYC lodging supply has already been impacted by the 16,000 rooms taken out of inventory for asylum seekers and the recent restrictions imposed on short-term rentals.
- Look for the deceleration of new supply combined with the contraction of current supply to benefit existing hotels by as much as 2.2 million incremental room nights in 2024, or $7.35 in RevPAR.
Robust hotel liquidity: Foreign capital reemerges to drive transaction volume to eight-year high
- NYC hotel transaction volume soared to $3.3 billion in 2023, the market’s highest total since 2016. Investors are gravitating towards the market driven by its strong fundamental performance and expectations of further growth.
- Foreign capital, driven by Asian and Middle Eastern investors, has emerged as the largest acquirer of hotel assets following nearly three years of minimal activity. Look for these groups to continue to be acquisitive, particularly in the luxury space, as debt market volatility persists.
Rising development costs: Discount to replacement presents opportunity for hotel investors
- Driven by rising construction costs and ongoing supply chain disruptions, NYC development cost per key for full-service hotels has soared to $796,000 in 2023. While acquisition costs are on the rise, the cost-to-buy is still significantly less than the cost-to-build.
- Look for investors to prioritize acquisitions over development over the short- to medium-term, which should further fuel NYC hotel liquidity
