No End in Sight for Midtown Hotel Boom
While not on the scale of the hotel boom that captured the city in the late 1980s, significant development in Midtown is keeping pace with continued growth in tourism.
Occupancy rates in the city remain among the highest in the nation, bolstered by Midtown and Times Square, even with a significant uptick in product (i.e. the number of hotel rooms)—and, remarkably, despite the fact that hotels continue to charge the highest room rates in the country.
“Hotels are on fire,” said Alan Miller, an executive managing director at Eastern Consolidated. “I can’t see a location more vibrant than Times Square, because so many people visit here.”
The city logged another record-breaking year for tourism in 2012, with 52 million visitors (41 million domestic and 11 million international), according to city data. Occupancy rates, which hovered around 83.7 percent, were second only to those on the Hawaiian island of Oahu, next in line being San Francisco, at 80 percent, according to data from Smith Travel Research.
“Top down, the occupancy has been stronger and more consistent—for a dozen years—than any other market on the planet,” said Tom McConnell, head of Cushman & Wakefield’s hotel transaction group. “Nobody has maintained occupancy over 80 percent for as long a period … this is the best hotel market in the world right now.”
Meanwhile, average hotel rates in the greater New York metro area averaged $251.59, while San Francisco rooms, by comparison, averaged just $171.72.
This comes even as a significant wave of new product hits Midtown as well as the Chelsea and Downtown areas. There are 79,802 hotel rooms in Manhattan in 2013, with another 30,867 rooms in planning and development stages, data from CBRE shows.
Construction lending has opened up following the lull experienced during the recession, and interest rates are low, creating a best-case scenario for hotels, experts said.
“When the world was melting in ’09, no one was traveling, no one was spending, and that was clearly affecting hotels,” Mr. Miller said. “No one was even talking about construction loans back then.”
Times Square has bounced back among the ideal destinations, but long ago the scene wasn’t so hot, Mr. McConnell said, recalling when he moved to the city in the ’80s, when Midtown was a shadow of the destination it is today.
“The only prominent hotel was the Marriott Marquis, and that really kicked off Times Square,” he said.
Zoning changes and J-51 abatements fostered by then-Mayor Ed Koch gave rise to a wave of full-service hotels in Times Square beginning in the mid- to late-1980s, among them the Crowne Plaza Times Square, the Renaissance New York Hotel 57, The London NYC, the Millennium Broadway Hotel, the Embassy Suites (now a DoubleTree), and later The Westin and The Hilton Times Square.
While Downtown and Chelsea—where boutique hotels have come to fill mid-block areas in manufacturing zones—have seen significant development in the last five or six years, Midtown and Times Square remain particularly desirable due to premier retail and branding opportunities.
That’s evidenced by the recent $325 million sale of the historic Milford Plaza Hotel in the heart of the Theater District. Other relative newcomers or projects in the works are the Paramount Hotel, the InterContinental at West 44th, DiamondRock Hospitality’s development at West 42nd, the conversion at the Quin Hotel at 57th Street, and The Baccarat Hotel & Residences, among a long list of others.