HVS Hospitality Services : 2008 Manhattan Hotel Market Overview : Student Questionnaire

Survey of the Members of the Hotel Association of New York City & the Big Apple Chapter of Hospitality Sales and Marketing Association International

Prepared by Diana Alfonso, Avery Fletcher, Sajni Patel, and Melissa Pierre

Mark Lomanno
President, Smith Travel Research

Throughout 2007, New York hotels continued to experience very strong operating performance. With annual occupancies reaching over 83 percent, hoteliers were able to maintain strong room rate growth, resulting in a 4th consecutive year of double digit RevPAR growth. In both of the key measures of ADR and RevPAR, New York hotels reported the highest levels of any U.S. city during 2007. This performance was even more dramatic when considering recent supply additions and a very sluggish U.S. economy in the second half of the year. It seems that for the present time, at least, NYC hotels have not felt the effect of the economic malaise as occupancy and room rate performance has remained very strong in the early stages of 2008. While this seems unlikely to continue throughout the year, it clearly demonstrates the robust nature of the City's lodging environment.

Hotels in NYC have clearly benefited from the lack of new room supply over the past several years, which has enabled them to maintain a very aggressive pricing strategy. This may change in the next several years as over 11,000 new rooms are currently in construction in the city. If all are completed, this will raise the existing supply base by about 7 percent. While these new rooms are certainly necessary, they may come on line during a weak economic environment, which may slow overall market performance toward the end of 2008. However, with NY being such a desired destination, we expect hoteliers to sustain pricing integrity, which will serve them well in the coming years.

This report presents the results of the 2008 Manhattan Hotel Market Overview survey conducted by graduate students of New York University’s Preston Robert Tisch Center for Hospitality, Tourism, and Sports Management in collaboration with HVS Global Hospitality Services. The objective of this research is to identify the weight of opinion regarding future trends in the industry and to understand to what degree these trends will affect the New York City market specifically.

An online survey was targeted to members of the Big Apple Chapter of the Hospitality Sales and Marketing Association International (HSMAI) and the Hotel Association of New York City (HANYC), which represents about 220 hotels. Representing professions in the sales and marketing, revenue management, and property operations fields, these hotel leaders serve as an excellent barometer of the industry climate in New York City and are most likely to benefit from the knowledge derived from this study.

Survey questions were limited to those related to operational themes and strategies that could be reasonably answered by this particular target audience. Though many future trends relate to other areas, like hotel financing for instance, those questions were not deemed applicable to this respondent pool and were excluded. The survey was also limited to less than 30 questions in order to ensure a sufficient return rate; therefore, many questions, though pertinent, were not included for the sake of the respondents’ time to complete the survey with the least amount of inconvenience possible.

New York University’s Preston Robert Tisch Center for Hospitality, Tourism, and Sports Management and HVS Global Hospitality Services thank all of the respondents for their participation in this study.

SURVEY FINDINGS

Graduate students of New York University’s Robert Tisch Center for Hospitality, Tourism, and Sports Management conducted an online survey of the members of the Hotel Association of New York City (HANYC), and the Big Apple Chapter of Hospitality Sales and Marketing Association International (HSMAI). The purpose of the survey is to gain perspective relative to the hotel market in New York City. Of the 45 responses, there were 43 usable surveys, representing a 9% survey return rate. The findings outlined below are based on these surveys.

The New York City market continues its strong performance, and the hotel professionals that work in the city display cautious optimism, due to the belief by more than half of the respondents, that economic uncertainty and increases in energy and labor costs will have a high potential impact on hotel operations. Despite these growing concerns, 97% of the respondents experienced Gross Operating Profit increases in 2007. Thirty-nine percent reported increases between 10% and 20%. The 2008 figures seem promising as well. The majority of the respondents believe that occupancy will be higher in 2008, with 31% expecting a 1% to 3% increase. All participants believe that their ADR will increase, with 74% expecting a rate boost anywhere from 4% to 10%. As for future year increases, 38% of the respondents believe that 2008 will be the last year when they will experience above inflation ADR increases, and that with the additional 20% to 30% rooms in the next 4 to 5 years, 74% believe that occupancy will decrease by 3 percentage points or less, and 29% anticipate an ADR decrease between 1% and 3%.

Additional details of the survey findings follow:

Almost half of survey respondents (46%) were from General Management. Sales and Marketing (18%) and Revenue Management (25%) made up 43% combined.
Over a quarter of respondents (30%) belonged to the luxury market, slightly less than a quarter (23%) to limited service, and 14% identified as boutique full service. Thirty-three percent classified their hotel property as “Other” with the majority of answers being conference/convention center or another type of full-service hotel besides boutique.
Three quarters (76%) of respondents work in a Midtown property, and almost half (48%) are located on the west side of Midtown. Upper East and West Sides combined accounted for 7% of respondents, which was the same percentage from the Downtown area. Ten percent of respondents were situated outside Manhattan.
The majority of respondents’ hotels (64%) were affiliated with a brand. Of those respondents, 25% saw an 11% to 30% contribution from their brand reservation system; and 23% had a 31% to 40% contribution. Half of all respondents saw a 40% or less contribution from their brand reservation system. Almost a quarter (23%) saw a contribution of over 40%.
In terms of year-over-year (2007-2008) demand growth, 38% of respondents expect an increase of more than 5% in the leisure customer segment; 24% expect an increase of more than 5% in the business segment; and 36% do not expect any changes in the meetings/groups segment.
Respondents have identified the business traveler as the most loyal customer. Forty-one percent of all respondents stated that more than 40% of their business segment is repeat customers. Fifty-one percent of the respondents agreed that 11% to 30% of their leisure customer base is repeat business. And forty-three percent of respondents stated that 11% to 30% of the meetings/groups customer base is repeat customers.
The majority of respondents have increased their marketing efforts compared to 2007. The greatest increase (61%) has been towards the leisure segment. Fifty-five percent of the respondents will increase their marketing efforts towards the business segment. Almost half of the respondents (49%) will not change marketing efforts towards the meetings/groups segment.
Over half (59%) of all respondents expect their occupancy to increase by year-end. Eighty-two percent expect occupancy to change by less than 3 percentage points (positive or negative) over 2008. All respondents agreed that ADR will increase in 2008, and all but one respondent expect RevPAR to increase this year. Seventy-four percent of respondents expect ADR to grow between 4% and 10% in 2008. Fifty-nine percent of respondents expect RevPAR to increase between 4% and 10% during the year.
Thirty-eight percent of all respondents expect rates to increase above inflation through 2008.
Seventy-four percent of all respondents believe that the additional 20% to 30% room supply in the next 4 to 5 years will decrease occupancy by 3 percentage points or less. Half of all respondents stated that the supply increase will have a 1% to 3% impact on ADR (positive or negative).
Seventy-five percent of respondents plan to conduct renovations to compete with the supply increase. Sixty-eight percent plan to increase amenities; 40% plan to implement and/or increase Customer Relationship Management programs; 38% plan to reposition their brand and/or market segment; and 5% have no specific tactics planned to compete with the supply increase.
Seventy-eight percent of respondents do not expect new inventory in the outer boroughs to impact their occupancy. And 81% of respondents do not expect this new inventory to impact their ADR.
Approximately 49% of respondents anticipate regional visitors to select a lower-category hotel in 2008. Over half of respondents expect these visitors to make day trips only. And close to 31% think they will stay outside Manhattan in satellite market hotels.
While nearly 58% of respondents anticipate that the forecasted limited-service supply increase will have no impact on their occupancy, 80% anticipate that this supply increase will have no impact on their ADR. About 43% of respondents expect a decrease in their occupancy; and 20% of respondents expect the limited-service supply increase to cause a decrease in their ADR.
Nearly 79% of respondents stated that green initiatives will have a limited to moderate impact on a customer’s decision to stay in a New York City hotel. Seventy-eight percent of respondents have undertaken energy efficiency initiatives. Approximately half of respondents have undertaken employee commitment and/or water conservation initiatives. And roughly 12% of respondents have not undertaken any green practices and/or initiatives to date.
Economic uncertainty was identified by 68% of the respondents as having the highest potential impact on hotel operation for the next few years. Other issues and trends identified as having high potential impact included an increase in energy costs (64%), an increase in labor costs (54%), and Customer Relationship Management (54%).
More than half of all respondents felt that increase in room supply, employee turnover, lifestyle branding, emerging technology, change in customer profiles, and social media would have limited potential impact on hotel operations in the next few years.
The revitalization of the Financial District and development of new luxury hotels in the area is viewed by 59% of the respondents as having a limited potential impact on hotel operation.
Reduction of barriers to global travel such as visa requirements and bureaucracy was identified as being the issue under discussion in Washington DC with the highest impact on hotel operations by 57% of the respondents. Additional allotments of H-2B Visas allowing for seasonal international employees was selected second by 20% of the respondents, and was followed by new employment validation procedures by 14% of participants.
Approximately one third of the respondents (37%) reported having more than 20% international guests on their hotel properties, with Europe identified as the strongest generator of international travelers for 88% of the respondent’s hotels. Eighty-three percent of the respondents listed the United Kingdom as the strongest generator of international travelers to their hotel property. Italy (9%), Germany (3%), Japan (3%), and Australia (3%) followed in international visitors to respondents’ hotels.
During 2008, 82% of respondents expect an increase in international leisure travelers. Sixty-one percent of respondents expect an increase in international business travelers. And 44% of all respondents believe that there will be no change to the meetings/groups segment international profile.
Ninety-seven percent of the respondents experienced Gross Operating Profit increases in 2007. Thirty-nine percent reported increases between 10% and 20%.
The overwhelming majority of respondents (98%) believe that labor costs will increase in 2008. Sixty-eight percent expect that this increase will be between 3% and 5%.

Further Analysis

Due to respondent profiling, the NYU student group was able to data-mine the differences of opinion between the various professionals represented in the survey. This analysis sheds light on different perspectives of the Manhattan hotel industry based on job function.

General Management Perspective

Hoteliers are cautiously optimistic. It is believed by respondents that the Manhattan hotel market will continue to succeed in 2008. The majority think that this year’s occupancy will be higher and ADR will increase above the rate of inflation. However, they have stated that success will depend a great deal on the country’s economic future, labor costs, and energy costs.

Additionally, with the international traveler representing more than 11% of hotel guests for 73% of all of the respondents’ properties, and expected to increase in the business and leisure segments by more than 60% of the respondents, it comes as no surprise that Washington DC’s discussions to reduce barriers to global travel has emerged as the most important political issue under discussion for Manhattan hoteliers. After all, the true measure of success for a hotel property is the continued demand for hotel accommodation, and the international traveler represents a significant portion of this demand.