HVS Hospitality Services: 2009 Manhattan Hotel Market Overview: Independent and Branded Hotels in Manhattan

Lalia Rach, Ed.D.
Divisional Dean and HVS International Chair
The Preston Robert Tisch Center for Hospitality, Tourism, and Sports Management

2009 will be remembered as the year of fortitude as New York City hotel professionals confronted transformational shifts in demand and unyielding pressure to cut expenses.

Business and leisure travel behavior has abandoned traditional patterns, shortening the booking cycle to days if not hours, rapidly switching allegiance from destination to destination while redefining a vacation as a want rather than a need.

Independent and Branded Hotels in Manhattan

This year, HVS Global Hospitality Services has also analyzed data provided by Smith Travel Research to illustrate the effects of the current state of the economy on independent and brand-affiliated hotels in Manhattan. The following graph presents the annual percentage change in RevPAR as well as the RevPAR levels for these two hotel categories since 1987.

As a reference, during the historical period reviewed, branded hotels averaged roundly 53.0% of the total Manhattan room supply, increasing from 50% in the late 1980s to 54% as of 2008. The independent hotel category experienced lower supply growth during the past 21 years compared to branded hotels, expanding at an average annual compounded rate of 1.11% from 1987 to 2008 as opposed to 1.92% for the branded hotels during the same period. The following graph presents the annual percentage change in supply for branded and independent hotels.

On the demand front, independent hotels exhibited a demand-to-supply ratio of roundly 45.0% from 1987 to 2008, compared to a ratio of roundly 29.0% for branded hotels. The demand-to-supply ratio, which is calculated by dividing the annual compounded growth rate for demand by the annual compounded growth rate for supply over the observed period, highlights the dynamics between supply and demand and provides an indication of the market’s capacity to push average rates upward. As a result, and due to stronger demand and supply dynamics, independent hotels were able to push room rate at a higher pace than branded hotels during the observed period, growing at an average annual compounded rate of 4.94% from 1987 to 2008 as opposed to 4.52% for the branded hotels during the same period. However, we note that branded hotels historically outperformed independent hotels with higher average rate levels, resulting in a RevPAR premium averaging roundly $32.00 from 1987 to 2008.