‘Transformational' Real Estate Development Boosts N.Y. Lodging

Mike Sorohan msorohan@mba.org

July 05, 2018

Already a dynamic hub for the lodging industry, New York is poised for strong growth over the next several years thanks to "transformational" real estate development that is changing the city's landscape and lodging environment, said JLL, Chicago.

The company's 2018 New York Hotel Market Report cited several Manhattan redevelopment projects expected to transform the city's lodging outlook over the next several years:

--Hudson Yards, situated in the Midtown West submarket, currently represents the largest private real estate development in the history of the U.S. and the largest development in New York since the Rockefeller Center.

--The Manhattan West District and Moynihan Station developments will also impact the Midtown West submarket and are targeted for delivery by 2022.

--Redevelopments are also occurring in Midtown East and Downtown, "all of which will elevate each respective neighborhood's profile," the report said. One Vanderbilt is underway in the Midtown East submarket--a 1.7 million gross square foot office skyscraper that will stand next to Grand Central Terminal. When complete, One Vanderbilt will represent the second tallest building in the city.

--Lower Manhattan is also being rejuvenated and with the expected delivery of 3 World Trade Center by year-end. The World Trade Center hub and memorial have recently been activated and millions of square feet of retail have been added, including Pier 17, a boardwalk in the area.

"This unprecedented surge creates a dynamic where submarkets previously concerned with increasing hotel room supply may become under-supplied in the next five years," the report said. "This is because the level of existing and anticipated Class A office space in the market will support rapid hotel room absorption."

The report said RevPAR performance to date suggests new supply additions are slowing and being absorbed. JLL projects RevPAR growth to become more pronounced in 2019 and 2020, as fewer rooms are anticipated for delivery over these two years than are projected to be delivered in 2018 alone.

In a JLL analysis of 90 profit-and-loss statements of New York City hotels from 2013-2017, data suggest gross operating profit (GOP) performance bottomed in 2016. Performance in 2017 started trending upward and performance in 2018 is off to a promising start, driven by year-to-date demand growth in May of 6.0 percent.
"Over the analyzed period, we noted that GOP is more sensitive to changes in RevPAR than supply," said Gilda Perez-Alvarado, Managing Director with JLL. "On average, when RevPAR shifts one percentage point (negative or positive direction), GOP will shift a corresponding three percentage points. As such, with sustained improvement in demand fundamentals and muted supply growth, the market will gain more rate integrity, resulting in positive RevPAR growth and stabilized margins at year-end."

The report said with year-to-date June hotel sales of $2.3 billion, New York's hotel transaction volume is nearly five times the volume achieved during the same period in 2017. The drivers behind the exceptional level are the sale of Edition Times Square for $1.53 billion (inclusive of retail and signage) and disposition of W Hotel New York for $190 million.

JLL said New York is a coveted hotel investment destination and now is an "opportune time" to invest in New York hotels.

"New York is one of the most coveted hotel investment destinations," the report said. "Its unwavering economic strength and tourism appeal will help the market overcome current supply challenges, allowing the market to experience meaningful growth in the near future."

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