HVS Hospitality Services : 2007 Manhattan Hotel Market Overview : Student Questionnaire

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

The graduate students of New York University's Preston 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 Hotel Sales & Marketing Association International (HSMAI). The purpose of the survey is to gain perspective relative to the hotel market in New York City. Of the 58 responses, there were 51 usable surveys, representing a 10% survey return rate; the findings outlined in this report are based on the usable surveys.

Mark Lomanno
President, Smith Travel Research

New York City hotels experienced another very strong year in 2006, as occupancy levels remained high, at over 82 percent. This historically high level of performance was punctuated by very modest growth in new room supply and stable room night demand. Over the past several years, New York City hotels have benefited from actual declines in room supply. In fact, the recent additions to supply have only brought the number of rooms in the city to levels that existed early in the decade. With supply growth stagnant during the current economic boom, room night demand has surged, driving occupancies up to these very high levels.

With market-wide occupancy at these levels, hoteliers are have been able to raise room rates fairly aggressively over the past three years. For the past 30 months, annualized room rate growth has exceeded 10 percent, resulting in double-digit RevPAR growth for an even longer period of time. Needless to say, this has created a very favorable market for hotel operators and owners. With barriers to entry remaining very high, the long-term outlook for new additions to room supply remains very benign. In the absence of an economic downturn, demand is likely to remain robust, which is almost certain to create an operating environment in which hotel operators in the city will be able to maintain their aggressive pricing strategy of the past several years.

The New York City market continues its strong performance, and the hotel professionals that work in the city share the optimism. Over half of the hotels represented by the survey respondents had an increase of at least 10% in their Gross Operating Margin (GOM) from 2005 to 2006. The GOM figures for 2007 seem promising as well. The majority of the respondents expect their average daily rate (ADR) to be at least 10% higher in 2007 than in 2006, and nearly 60% believe that occupancy will change only slightly. Even with the expected increase in room supply, the market remains optimistic. Over half of the respondents indicated that the increase in room supply by 2009 will decrease the occupancy of the NYC market as a whole, but feel that their own properties, neighborhoods, and competitive set will not be affected. However, they do believe that as rates continue to rise, the meetings/groups segment (46%) and the leisure segment (44%) are most likely to choose a hotel outside Manhattan, with Hoboken/Jersey City receiving most of the overflow business.

Details of the findings follow:

Most of the respondents work in the area of sales and marketing (31%) or operations (27%).
Survey respondents categorized their hotel market segments as luxury (18%), upper upscale (31%), upscale (18%), mid-scale with food and beverage (14%), mid-scale without food and beverage (16%), and economy (4%).
Sixty-six percent of the respondents work in properties located in the Midtown area: Midtown West (45%) and Midtown East (22%).
More than half of the respondents indicated that 41% of their guests were from the business segment. Additionally, 51% of the respondents specified the leisure segment made up over 31% of their guests, while 37% indicated that over 21% of their business was meetings/groups.
The majority of the respondents expected increases in all customer segments. Seventy-six percent of the respondents expected a higher growth rate in business travel over the leisure and meetings/groups segments. Business travel was also the fastest-growing customer segment in last year�s survey.
Approximately half of all respondents stated that greater than 40% of their business segment is repeat business.
Fifty-two percent of the respondents will increase their marketing efforts toward the leisure segment. Fifty-three percent will not change their business segment marketing efforts. For the meetings/groups segment, 45% will not change, while another 45% of respondents will increase their marketing effort toward this segment.
"Lifestyle" branding, environmental sustainability, family travel, and emerging technology are impacting the marketing strategies of the majority of the respondents. Forty one percent reported �lifestyle� branding having the greatest effect, while 49% considered environmental sustainability as having "little to no effect."
Nearly 86% of all the survey respondents expected that their occupancy will increase by year-end. Thirty-nine percent expected that it will increase between 0% and 3%, while 20% believe it will decrease by 0% and 3% at most.
With regard to ADR, the majority of the respondents expect their ADR to be at least 10% higher than in 2006.
While 30% of the respondents expect their RevPAR (rooms revenue per available room) to increase between 7% and 10%, 40% of the respondents expect an increase of higher than 10%.
The majority of the respondents agreed that the rapid increase in rate will peak by year-end.
While 67% of the respondents expect no change in their room inventories, 16% of the respondents expect a reduction in room inventory over the next 12 months.
Nearly half of the respondents indicated that the anticipated increase in room supply expected by 2009 will cause a decrease in the NYC market occupancy as a whole, but feel that their own properties, neighborhoods, and competitive set will not be affected.
In terms of rate, the majority of respondents feel that the increase in room supply will increase rates in their neighborhoods, as well as the NYC market, but not in their competitive set.
According to survey respondents, 74% will be changing amenities, and 72% will be renovating their rooms to compete with the increasing supply of hotel rooms.
Approximately 88% of respondents feel that favorable exchange rates will increase travel to NYC, both domestic and international.
As rates continue to rise, 46% of the survey respondents feel that the meetings/groups segment is the most likely segment to choose a hotel outside Manhattan, followed by the leisure (44%) and business (10%) segments.
Forty-two percent of respondents feel that Hoboken/Jersey City will receive most of the overflow business from Manhattan in 2007, similar to the 2006 survey results. Eighteen percent feel Brooklyn will receive most of the overflow, followed by Queens, including Long Island City (12%), LGA (10%), JFK (10%), and other areas in New Jersey (8%).
Over three-fourths of the respondents feel that the emergence of new hotel developments occurring in the outer borough areas (including New Jersey) will not affect their hotels in terms of occupancy or rate.
Ninety percent of the respondents believe that price-sensitivity is the most influential factor for potential guests choosing a hotel outside Manhattan, an increase of approximately 30% from the 2006 survey. Seventy-eight percent of respondents feel that the lack of available rooms will influence travelers to stay outside Manhattan, up about 45% from the 2006 survey.
Seventy-one percent of respondents expect the price-sensitive regional market (PA, CT, upstate NY, and MA) will choose a lower-category hotel, while 37% feel that they will stay in satellite markets, such as Hoboken and Queens/Long Island.
Sixty-nine percent of respondents feel that newly built limited-service hotels will mainly accommodate leisure guests, up about 19% from the 2006 survey. Twenty-nine percent of respondents feel that business guests will be accommodated by limited-service hotels followed by meetings/groups (2%).
Seventy-eight percent of the respondents feel that the emergence of new brands, such as NYLO and aloft, will not affect the occupancy of their hotels.
As found in the 2005 and 2006 surveys, labor costs remain an important issue for hotels. Fifty-seven percent of the survey respondents still considered labor costs as having the most potential impact. Forty-three percent feel that an increase in energy costs will have the most potential impact on their hotels� operation through 2008, followed by the Javits Center�s expansion (33%), increase in room supply (24%), employee turnover (18%), and changes in customer profiles (16%).
Seventy percent of respondents expect an increase in their international leisure travelers over 2006. Respondents also stated that they expect increases in international business travelers (59%) and international meetings/groups (28%).
Approximately 90% of the survey respondents indicated that Europe is the strongest generator of international travelers to New York City hotels, up from the 2006 survey, with the United Kingdom being the primary market that provides the international travelers.
Fifty-three percent of the hotels represented by the survey respondents had an increase of at least 10% in their Gross Operating Margin from 2005 to 2006.
Ninety-eight percent of the survey respondents expected labor costs to increase; almost 50% believe that it will be between 6% and 10%.

Further Analysis

Due to respondent profiling, the NYU student group was able to data-mine the differences of opinions between the various hotel professionals represented in the survey. These analyses are meant to shed light on the different perspectives of the New York City hotel market.

Sales and Marketing Perspective

Summary
It is interesting to see how some issues are given lesser or greater importance depending on job function and hotel neighborhood location in NYC. Upper-class hotels believe that the increases in rate will peak in six months or less, while the rest agree that it will take until year-end. The Midtown West market is optimistic about its future occupancy, with respondents believing that occupancy in their neighborhood will increase even though the NYC market plans 10% to 15% additional rooms. Sales and marketing is the most positive department, expecting an increase in occupancy, even with added hotel rooms by 2009. However, they remain conservative in their estimates of occupancy, ADR, and RevPAR.