New York City Department of City Planning NYC Hotel Market Analysis Existing Conditions and 15-Year Outlook N NEW YORK CITY HOTEL MARKET ANALYSIS New York City Hotel Market Analysis and M1 Zone Impacts Table of Contents Prepared for New York City Department of City Planning by EXECUTIVE SUMMARY I • BJH Advisors (bjhadvisors.com) INTRODUCTION 1 COVID Pandemic Shutdown 1 • BAE Urban Economics (bae1.com) Purpose of Study 2 Methodology 3 Data Sources 3 Approach 5 Key Definitions 6 DEFINING THE NYC LODGING MARKET 8 Lodging Typologies 8 Existing Clientele and Customer Base 13 Hotel Development, Ownership and Management 15 Geographies: Defining NYC Borough Markets and Submarkets 24 Land Use Controls and New Regulation 25 NYC AND SUB-AREA HOTEL MARKET EXISTING CONDITIONS 28 Impact of COVID-19 on the New York City Hotel Market 28 © 2020 City of New York HOTEL CLOSURES: THE STATE OF THE NYC HOTEL MARKET IN OCTOBER 2020 34 New York City Department of City Planning ROLE OF THE SHORT-TERM RENTAL MARKET 60 CENTRAL OFFICE ECONOMIC IMPACTS, 2019 63 120 Broadway RECOVERY PROJECTIONS 65 31st Floor New York, NY 10271 NEW YORK CITY HOTEL MARKET OUTLOOK 72 New York City Projected Hotel Demand 72 Tel . 1-212-720-3300 Fax. 1-212-720-3488 Outlook and Future Trends 75 APPENDIX I: LITERATURE REVIEW 87 http://www.New York City.gov/planning APPENDIX II: HOTEL ASSET CLASSES 89 APPENDIX III: HOTEL SUBMARKET MAP 91 NEW YORK CITY HOTEL MARKET ANALYSIS NEW YORK CITY DEPARTMENT OF CITY PLANNING Table of Tables TABLE 1: PERMANENT HOTEL CLOSURES IN NEW YORK CITY CONFIRMED BY HANYC, OCTOBER 2020 35 FIGURE 3: DISTRIBUTION OF HOTEL ROOMS IN NEW YORK CITY BY CLASSIFICATION, JANUARY–SEPTEMBER 2020 31 TABLE 2: PERMANENT HOTEL CLOSURES REPORTED IN THE PRESS BUT NOT CONFIRMED BY HANYC, 36 OCTOBER 2020 FIGURE 4: PERCENTAGE OF ROOMS CLOSED BY CLASSIFICATION, NEW YORK CITY, 32 JANUARY–SEPTEMBER 2020 TABLE 3: BUSINESS AND LEISURE TRAVEL, NYC AND U.S. 73 FIGURE 5: NEW YORK CITY REVPAR TRENDS, JANUARY 2018–SEPTEMBER 2020 33 TABLE 4: EXISTING HOTEL DEMAND, SEPTEMBER 2020 74 FIGURE 6: NEW YORK CITY REVPAR TRENDS, JANUARY 2018–SEPTEMBER 2020 34 TABLE 5: PRE-COVID NYC HOTEL DEMAND, JANUARY 2020 75 FIGURE 7: PERCENTAGE CHANGE IN ROOM CLASS TYPE BY BOROUGH, JANUARY–SEPTEMBER 2020 38 TABLE 6: LEISURE HOTEL DEMAND PROJECTIONS BY BOROUGH, 2020–2035 77 FIGURE 8: MANHATTAN HOTEL MARKET REVPAR TRENDS, JANUARY 2018–SEPTEMBER 2020 40 TABLE 7: BUSINESS HOTEL DEMAND PROJECTIONS BY BOROUGH, 2020–2035 78 FIGURE 9: UPPER EAST SIDE/UPPER WEST SIDE/HARLEM/UPTOWN HOTEL MARKET REVPAR TRENDS, TABLE 8: PROJECTED ROOM DEMAND BY BOROUGH AND TRAVEL TYPE, 2025–2035 79 41 JANUARY 201–SEPTEMBER 2020 TABLE 9: ROOM CLOSURES AND REOPENINGS, FALL 2020 80 FIGURE 10: MIDTOWN WEST/TIMES SQUARE HOTEL MARKET REVPAR TRENDS, JANUARY 2018– 43 TABLE 10: GROSS UNMET ROOM DEMAND BY BOROUGH, TEMPORARILY CLOSED ROOMS REOPEN, SEPTEMBER 2020 81 2025–2035 FIGURE 11: MIDTOWN EAST HOTEL MARKET REVPAR TRENDS, JANUARY 2018–SEPTEMBER 2020 45 TABLE 11: GROSS UNMET ROOM DEMAND BY BOROUGH, TEMPORARILY CLOSED ROOMS PERMANENTLY CLOSE, 82 FIGURE 12: MIDTOWN SOUTH HOTEL MARKET TRENDS, JANUARY 2018 – SEPTEMBER 2020 47 2025–2035 FIGURE 13: SOHO/UNION SQUARE/VILLAGE/TRIBECA/LOWER EAST SIDE HOTEL MARKET TRENDS, TABLE 12: RESIDUAL ROOM DEMAND BY BOROUGH, 2020-2035 84 49 JANUARY 2018–SEPTEMBER 2020 TABLE 13: ADJUSTED ROOM DEMAND BY BOROUGH, 2020-2035 85 FIGURE 14: FINANCIAL DISTRICT HOTEL MARKET TRENDS, JANUARY 2018–SEPTEMBER 2020 50 FIGURE 15: QUEENS HOTEL MARKET TRENDS, JANUARY 2018–SEPTEMBER 2020 52 FIGURE 16: BROOKLYN HOTEL MARKET TRENDS, JANUARY 2018–SEPTEMBER 2020 55 Table of Figures FIGURE 17: BRONX HOTEL MARKET TRENDS, JANUARY 2018–SEPTEMBER 2020 58 FIGURE 18: STATEN ISLAND HOTEL MARKET TRENDS, JANUARY 2018 – SEPTEMBER 2020 60 FIGURE ES-1: NYC HOTEL ROOM SUPPLY AND DEMAND, 2020-2035, TEMPORARILY CLOSED FIGURE 19: NEW YORK CITY AIRBNB LISTINGS, JANUARY 2020 – SEPTEMBER 2020 62 II ROOMS REOPEN FIGURE 20: DIRECT SPENDING, LEISURE VS. BUSINESS AND DOMESTIC VS. INTERNATIONAL TRAVELERS, 63 FIGURE ES-2: NYC HOTEL ROOM SUPPLY AND DEMAND, 2020-2035, TEMPORARILY CLOSED 2019 II ROOMS BECOME PERMANENTLY CLOSED FIGURE 21: VISITOR SPENDING BY CATEGORY (IN BILLIONS), 2019 64 FIGURE 1: NET IMPACT OF COVID-19 ON NEW YORK CITY HOTELS AND ROOMS, 29 FIGURE 22: NYC HOTEL ROOM SUPPLY AND DEMAND, 2020-2035, TEMPORARILY CLOSED JANUARY–SEPTEMBER 2020 82 ROOMS REOPEN FIGURE 2: GEOGRAPHIC DISTRIBUTION OF HOTEL ROOMS IN NEW YORK CITY BY BOROUGH, 30 FIGURE 23: NYC HOTEL ROOM SUPPLY AND DEMAND, 2020-2035, TEMPORARILY CLOSED JANUARY–SEPTEMBER 2020 83 ROOMS BECOME PERMANENTLY CLOSED NEW YORK CITY HOTEL MARKET ANALYSIS NEW YORK CITY DEPARTMENT OF CITY PLANNING FIGURE ES-1: NYC HOTEL ROOM SUPPLY AND DEMAND, 2020-2035, TEMPORARILY CLOSED ROOMS REOPEN Executive Summary 170,000 his report presents an overview of the hotel industry and accommodation market in New York City, pre-COVID 136,000 and post-COVID, as well as current and projected future conditions. It is intended to provide guidance to the New York City Department of Planning (DCP) regarding the potential impacts of imposing a Special Permit T 102,000 for hotel development throughout New York City. It analyzes trends related to hotel development patterns and typologies, demand drivers, occupancy and revenue and projected development pipeline for hotel construction and delivery, with particular focus on the current and projected impacts of COVID-19 on the hotel industry. 68,000 Key Findings 34,000 New York City’s robust visitor numbers before the COVID-19 pandemic generated strong demand for hotel rooms, reflected by recent average occupancy rates that were among the highest of any urban market in the 0 United States. With the pandemic, the hotel industry throughout the U.S. suffered and the New York City hotel market, as a result of its characteristics and specific dependencies to international and business travel and the Jan. 2020 Sept. 2020 2025 2030 2035 broader tourism infrastructure (e.g., Broadway), experienced an even greater drop in demand relative to national DEMAND SUPPLY levels. Several industry analysts project that the New York City tourism sector and related hotel demand will not Scenario 1: Assume all temporarily closed hotel rooms reopen and pipeline rooms delivered by 2025. recover until 2025. While a return to pre-COVID levels of tourism by 2025 is projected, it is dependent on a variety Assume demand recovery in 2025 and historic 3.7% annual growth rate in demand for 2025–2035. of factors that make predicting a recovery year challenging. SOURCES: STR; HANYC; BJH; BAE; all 2020. The supply side of the hotel market has also seen significant negative impacts. Because the market has seen FIGURE ES-2: NYC HOTEL ROOM SUPPLY AND DEMAND, 2020-2035, TEMPORARILY CLOSED ROOMS nearly 40,000 rooms go offline since the COVID pandemic began, the analysis evaluates a potential range of BECOME PERMANENTLY CLOSED hotel supply to meet future demand bookended by two scenarios. Scenario 1 assumes all confirmed closed hotels 170,000 remain out of the hotel inventory, but all temporarily closed hotels return by 2025. Scenario 2 assumes all hotels that were closed either permanently or temporarily as of Fall 2020 permanently close.1 136,000 As seen in the following figures, despite permanent hotel room reductions, either resulting from immediate closures in the wake of the pandemic or other factors detailed in this report and given a projected 2025 return to pre-COVID growth rates, the analysis finds that by 2035 there will be net residual demand (total future demand 102,000 minus today’s existing and permitted supply) for between 21,500 additional hotel rooms (Scenario 1) and 52,400 additional hotel rooms (Scenario 2) citywide. 68,000 It is important to note that net residual demand may not be met if a significant portion of the currently closed hotel rooms in the City are unable to reopen and/or if supply is unable to grow during and after recovery. The timing of 34,000 recovery will require getting to positive public health outcomes, as well as other market factors supporting new hotel development, which are subject to many variables. We have noted these risk factors in the analysis. 0 Jan. 2020 Sept. 2020 2025 2030 2035 1 As presented in Section 3, as of Fall 2020 there were 3,500 rooms permanently close and another 34,300 rooms temporarily closed. Temporarily closed rooms include those that have not issued WARN notices to the City and DEMAND SUPPLY were not otherwise confirmed permanently closed by industry stakeholders. Scenario 2: Assume no temporarily closed hotel rooms reopen and pipeline rooms delivered by 2025. Assume demand recovery in 2025 and historic 3.7% annual growth rate in demand for 20252035. I SOURCES: STR; HANYC; BJH; BAE; all 2020. II NEW YORK CITY HOTEL MARKET ANALYSIS NEW YORK CITY DEPARTMENT OF CITY PLANNING Methodology Hotel Demand Drivers A general New York City market overview is followed by a more in-depth analysis of hotel submarkets within The hotel industry in New York City depends on demand from both domestic United States-based travelers and New York City, which include each borough as well as intra-borough submarkets. The final section of the report overseas visitors. As New York City is a larger international destination than most other markets in the United provides an outlook for hotel development based on an analysis of supply and demand recovery projections, as States, New York City hotels have historically been more dependent on international visitors, who tend to stay well as forecasts as to how projected future New York City hotel room supply would be able to meet projected longer and spend more.