HotStats Blog
Late filmmaker Nora Ephron once asked: “Don’t you love New York in the fall?” The answer is an ardent yes for hoteliers. For it’s the Autumn months, as the data evidence, when hotel owners and operators make hay in the Big Apple.
On an annualized basis, the bulk of New York hotel profits are derived in the months September through December. The span draws the highest average daily rates in the city compared to the preceding months to January, with ADR peaking in September, according to HotStats data on full-service Manhattan hotels. ADR for September 2017 was $392.07 for the hotels reporting; October 2017 clocked in at $377.14; November 2017 at $367.56; and, in December 2017, ADR perked back up to $386.82.
In contrast, January and February are the biggest drag on New York hotels. For 2017, those months’ ADR was $251.04 and $240.96, respectively ($255.69 and $246.36 in 2018). ADR rose a modest $55 in March 2017 off February, but ADR doesn’t surpass $300 until April ($322.31) and remains on that wavelength until a precipitous drop starting in July ($291) and carrying into August ($286). (2018 numbers are a relative facsimile.)
Fall In
The calendar’s turn to September is a salve for hotel owners and operators. Part of the fall boon is timing: Rates are depressed in the summer months as family vacations escalate and corporate travel decelerates. And while New York receives its fair share of vacations, families, particularly ones on a budget, are heavily price sensitive, which stymies the ability to drive a high rate. This explains why July and August are the third and fourth worst ADR months for New York.
The summer lull gives way to a pickup in corporate business, as companies ramp up travel that deescalated during the summer months. And as leisure transient is highly sensitive to price, corporate travel is less so, allowing operators to increase rates without fear of a drop off in occupancy. Here, the data concur: While January and February don’t cooperate, occupancy rates in New York from March onward through the end of last year were above 85 percent, reaching an apex of 92 percent in December 2017.
“January and February are by far the weakest months with September through November the strongest—when the profits are the highest,” said Nick Kellock, COO of Raleigh, N.C.-based hotel owner/operator Concord Hospitality. The company’s New York portfolio includes two Cambria hotels in Manhattan (Chelsea and Times Square) with the AC Hotel NYC Downtown in the Financial District slated to open in October.
Concord’s success during the fall months is predicated considerably on its ability to drive rate and grow top-line revenue, which more easily flows down to the bottom line. “It’s not [a function] of occupancy, but rate,” he said. “Typically, more rate, a higher rate flows down quicker to the bottom line.”
Pay Dirt
From a profit perspective, understandably, gross operating performance per available room (GOPPAR) and profit margins are highest September through December. In October 2017, GOPPAR for full-service hotels in New York City was $187.36 with a profit margin of 39.5 percent, meaning hotels earned nearly 40 cents on the dollar. In this example, GOPPAR performance came on the back of a high ADR.
Conversely, profitability is severely squeezed in months like January and February. Profit margins in those months were a paltry 4.6 percent and 6.3 percent, respectively, in 2018. GOPPAR for those months was a miniscule $13.15 and $17.20, respectively.
But New York’s ability to drive margin is impeded by unionized labor, noted Sean Hennessey, principal of New York-based Lodging Advisors. His company advises a cross section of the hospitality industry from hotel investors to franchisors and management companies, offering services from asset oversight to valuation.
In New York City, operations are relatively stable because most hotels are union shops, whose labor schedules are fixed ad stable through the year, regardless of demand.
“Hotels fundamentally run a fixed-cost business in New York because of it,” Hennessey said. “Once you get above the break-even point, that is where things get exciting.”
Beginning in the fall is when New York hotels shatter through the break-even point. “September and October are when travel demand picks up. If you could sell a room for $250 in August, then sell that same room for $500 in September or October, the marginal profitability of that additional money is probably 90 percent compared to an average profit margin of 20 percent or less for a lot of these properties,” he said. “Those peak periods contribute the bulk of the profitability.”
Event Driven
The fall benefits from a slew of high-profile events in the city that prompt compression. Last year, the UN General Assembly held it 72nd session in New York September 12-25, bringing in scores of international delegates and snarling traffic. The 73rd session will convene in New York September 18-October 5.
September is also when the better part of the U.S. Open is played in Flushing, N.Y. (Queens), with players, fans, media and more crowding Manhattan’s hotels, particularly on the city’s east side, which is closer to the tennis facility across the river. New York also benefits when the hometown New York Yankees and/or New York Mets make a playoff run—the latter less prone of late—with postseason baseball stretching to Halloween.
Meanwhile, the New York City Marathon, run annually the first Sunday in November, produces heightened hotel demand and premium hotel rates. Consider New York’s largest hotel by room count—the New York Hilton Midtown. The 1,980-room property’s lowest flexible rate for the night of November 3 of this year (the marathon is run November 4) is $524 (Honors members can obtain a rate around $480). The rate for the same room type, exactly one week later, on the night of November 10, is $181 less.
“A compression event like the marathon is nirvana for hotels,” Hennessey said—even more so if the industry doesn’t have Airbnb as a competitor. The race draws more than 50,000 runners and wheelers and a wave of spectators to the city.
A 2010 study by the New York Road Runners club claimed that the marathon generated an estimated $350 million for the city with some $65 million going to hotels. Airbnb became a sponsor of the marathon in 2014 and 2015 ostensibly to lure some hotel demand to its platform.
Airbnb was absent as a sponsor in 2016 when the state passed a new law that imposed fines of up to $7,500 per violation for advertising illegal units on home-sharing sites that violate a 2010 law that made home-sharing in multifamily units for less than 30 days illegal.
Two years later, Airbnb’s grip on New York—it has about 50,000 listings in the city, counting all five boroughs—could be loosening. This August, New York City Mayor Bill de Blasio signed a bill that requires home-sharing sites to turn over detailed data about their hosts, including names and addresses, the type of dwellings being rented, the frequency of rentals, the rental income and, in some cases, the account name and number where hosts receive their rental fees. The new law takes effect in February 2019.
An impotent Airbnb is a win for the hotel industry and a plus for profits.
