Pwc's Manhattan Lodging Index
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Manhattan Lodging Index Second Quarter 2020 Manhattan Lodging Overview Q2 2020 The COVID-19 pandemic continued to severely impair Manhattan hotels in the second quarter, as travel restrictions and business closures remained the new normal. With over 60,000 hotel rooms currently closed, widespread cancellation of group travel, and heightened economic uncertainty, second quarter revenue per available room (“RevPAR”) experienced a year-over-year decline of 81.6%. This represents the largest decline in RevPAR in modern history for the market. “You won’t see meaningful increases in operating metrics for Manhattan hotels until we see a return of the business traveler, and that likely comes after a widely distributable vaccine and therapeutics become available.” — Warren Marr, Managing Director, PwC Manhattan Q2 RevPAR Change by Month April May June 10% 1.0% 0% -10% -4.0% -3.5% -20% -30% -40% -50% -60% -70% -80% -80.4% -80.9% -90% -83.9% 2018 to 2019 2019 to 2020 Source: PwC, based on STR data Manhattan Lodging Index Q2 2020 Unprecedented closures continue to impact Manhattan hotels Rooms Closed – All Hotels Rooms Closed – By Class (% of existing supply)1 (% of existing supply)1 76% 70% 52% 46% 44% 105,900 39% rooms 58% Luxury Upper Upscale Upper Midscale Economy Upscale Midscale Six months since the start of the COVID-19 pandemic, Luxury and Upper Upscale class hotels are the most Manhattan’s lodging sector continues to experience record impacted, with 70% or more of hotel rooms in each of these closures. As of early September, approximately 61,450 hotel segments closed. Upper upscale hotels are experiencing the rooms (representing 58% of total inventory) in Manhattan highest levels of permanent closures. On the other hand, were closed, with approximately 2,700 rooms reporting to lower-priced hotels have been relatively less impacted, stay closed permanently. driven by a combination of factors, including a comparatively lower operating cost structure. It’s not surprising that, given their operating cost structure, higher-priced hotels are disproportionately impacted. As the COVID-19 pandemic evolved rapidly and severely in March, owners, brands, and managers acted decisively to temporarily close hotels and conserve cash. Over 90% of Class Permanently Temporarily Total hotel closures in Manhattan occurred in March, and Closed2 Closed2 Closed2 continued in April. While the pace of closures has stabilized, Luxury 3% 74% 77% some temporarily closed hotels have now reported to be closed permanently. Upper Upscale 6% 64% 70% Upscale 1% 50% 51% While the difficult decision to permanently close a hotel is driven by a combination of factors, including cost and debt Upper Midscale 1% 38% 39% structure, and sponsor wherewithal, our conversations with Midscale 0% 46% 46% industry stakeholders points to a rigorously challenging period ahead, with potential permanent closure of additional Economy 0% 44% 44% Manhattan hotels an option increasingly under Total 3% 55% 58% consideration. Source: PwC analysis based on data from STR and New York State Department of Labor 1. Hotel room closures as of 9/2/2020, based on NYS Worker Adjustment and Retraining Notification (WARN) notices. Existing supply as of 12/31/2019. 2. Expressed as a percentage of existing supply of 12/31/2019. PwC Manhattan Lodging Index | Second Quarter 2020 2 Manhattan Lodging Index Q2 2020 RevPAR fell 81.6% year-over-year during the second occupancy and ADR fell across the city. Lower Manhattan quarter, as the COVID-19 pandemic continued to lead to had the largest decline in RevPAR at 84.8%, followed by significant declines in both occupancy and average daily Midtown East with a decline of 84.3%. Upper Manhattan rate for Manhattan hotels. Year-over-year declines in and Midtown West had declines of 82.6% and 81.9%, occupancy were higher in April at 64.9% than in May and respectively. Of the five Manhattan neighborhoods tracked, June, at 53.6% and 57.9%, respectively. With overall Midtown South followed with the smallest decline in Manhattan occupancy at 37.2% and average daily rate RevPAR at 78.8%, with declines in occupancy and ADR of (“ADR”) at $127.24, Manhattan RevPAR fell $210.40 to just 56.0% and 51.8%, respectively. $47.39 during the second quarter. During the second quarter, RevPAR at full-service hotels Of the four market classes tracked, luxury properties proved to be more impacted by coronavirus-related lock- exhibited the most notable year-over-year decline in downs, than limited-service hotels. With year-over-year RevPAR, down 91.9% for the second quarter, driven by an declines in occupancy of 62.1% and 49.8%, respectively, 81.6% decrease in occupancy and a 56.2% decline in ADR. RevPAR decreased by 83.3% for full-service properties, For upper upscale hotel properties, where occupancy fell by while limited-service hotels saw RevPAR declines of 75.8% 63.7%, Q2 RevPAR finished the quarter down by 83.2%. over the same period. Upscale and upper midscale properties posted relatively For chain-affiliated and independent hotels, second quarter lower declines in RevPAR, at 78.2% and 73.9%, RevPAR fell by 81.9% and 81.0%, respectively. Driven respectively, with less severe declines in occupancy of primarily by declines in occupancy of 56.0% and 61.7%, 53.1% and 55.5%, respectively. Upper midscale properties respectively, RevPAR was further hindered by decreases in experienced the lowest relative year-over-year decline in ADR of 58.9% and 50.4%, respectively. ADR, at 41.2%. During the quarter, all five Manhattan neighborhoods experienced year-over-year declines in RevPAR as Manhattan Q2 Performance, 25-Year Trend $350 100% $300 90% $250 80% $200 70% $150 60% Occupancy ADR/RevPAR $100 50% $50 40% $0 30% '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20 ADR RevPAR Occupancy Source: PwC, based on STR data PwC Manhattan Lodging Index | Second Quarter 2020 3 Manhattan Lodging Index Q2 2020 Employment Trends Unemployment levels in New York City and the State New York City’s private sector employment fell by 758,000 reached historic levels during the second quarter, as many jobs during the 12 month period ending in June of 2020 to coronavirus-related business closures were extended 3,322,100. through the month of June. According to the New York State Department of Labor, the seasonally-adjusted During the period, all nine sectors tracked by the New York unemployment rate for New York State averaged 15.2% State Department of Labor experienced job losses year- during the quarter, which represents a 1,120 basis point over-year. Those where losses were the greatest include increase from prior-year levels. For New York City, the leisure and hospitality sector, which lost 278,900 jobs, seasonally-adjusted unemployment increased by 1,380 the trade, transportation, and utilities sector, which lost basis points from Q2 2019, averaging 17.9% from April 136,700 jobs, the professional and business services through June. sector, which lost 113,400 jobs, the educational and health services sector, which lost 73,900 jobs, the natural For the nation, where overall unemployment increased by resources and mining sector, which lost 54,800 jobs, the 920 basis points from the prior quarter and by 940 basis construction sector, which lost 38,200 jobs and the financial points from the prior year, the unemployment rate ranged activities sector, which lost 34,200 jobs. Additional job from 14.7% to 11.1% during the second quarter, and losses during the quarter occurred in the manufacturing and averaged 13.0%. information sectors, which posted job declines of 14,700 and 13,200, respectively. As indicated by the New York State Department of Labor, New York City Unemployment for the 25-Month Period Ended June 2020 825 25.0% 750 22.5% 675 20.0% 600 17.5% 525 15.0% 450 12.5% 375 10.0% 300 7.5% Number of People 225 5.0% Unemployment Rate Unemployed (thousands) Unemployed 150 75 2.5% 0 0.0% Jul-18 Jul-19 Oct-18 Oct-19 Apr-19 Apr-20 Jun-18 Jun-19 Jun-20 Jan-19 Jan-20 Mar-19 Mar-20 Feb-19 Feb-20 Nov-18 Dec-18 Nov-19 Dec-19 Aug-18 Sep-18 Aug-19 Sep-19 May-19 May-20 Number of People Unemployed Unemployment Rate Source: New York State Department of Labor PwC Manhattan Lodging Index | Second Quarter 2020 4 Manhattan Lodging Index Q2 2020 Gross Metro Product and Consumer Price Index During the second quarter of 2020, U.S. gross domestic product posted the single largest decline in economic activity in the nation’s history, at a seasonally-adjusted annualized rate of 32.9%. According to the advance estimate released by the Bureau of Economic Analysis, the decline in U.S. real gross domestic product (“GDP”) was driven largely by negative contributions from personal consumption expenditures, exports, private inventory investment, nonresidential fixed investment, residential fixed investment, and state and local government spending. Federal government spending, which increased during the second quarter, served to partially offset the general decline in economic activity. Additionally, imports, which represent a subtraction in the calculation of GDP, fell during the second quarter as consumers and business restricted or redirected their spending. According to Moody’s Economy.com May 2020 release, 2020 gross metro product (“GMP”) for the New York metro area is forecasted to decrease by approximately 9.2% from prior-year levels. In 2021, Moody’s predicts that GMP will experience growth of 0.9% as economic recovery begins, with an increase in GMP of 8.3% forecasted in 2022.