Knocked down for the count after September 11, Manhattan`s lodging market is now back on its feet…
Knocked down for the count after September 11, Manhattan`s lodging market is now back on its feet and sparring for the next heavy-weight title, according to a major report released yesterday by Hotel Investment Management LLC, a hospitality consulting firm based in Maplewood, New Jersey. The author of the report and Principal of the firm, Mr. Ross Woods, said yesterday that by the end of 2005, the Manhattan lodging market will have experienced the most spectacular come-back of any hotel market in the nation over the past twenty years if present trends continue.
Mr. Woods said that over the two-year period from the beginning of 2004 to the end of 2005, Manhattan`s hotel operators will have achieved revenue per available room (RevPAR) growth that took their predecessors about five years to achieve following the economic downturn in the early nineties. Normally, we see modest increases in RevPAR growth during the recovery phase of the hotel market cycle and more robust growth in the expansion phase, said Mr. Woods. However, the unprecedented growth in demand has underwritten the magnitude of the turn-around and defied conventional wisdom.
We forecast occupancy rates to grow about a percentage point to 84.2% in 2005. Average daily rates are likely to grow dramatically by over 14% to about $230 in 2005. As a consequence, RevPAR is expected to increase by almost 16% to about $194 in 2005, said Mr. Woods
The peak RevPAR achieved in October 2000 at over $223 will likely be eclipsed this year in October, November and December. We should remember we are talking in nominal dollars here, said Mr. Woods. Over the past four years we have had almost 10% inflation, so the industry has a $32 gap before it approaches the level of 2000 RevPAR in real terms. Hitting the 2000 peak, even in nominal dollars, is a major milestone however.
Based on the likely long-term trend of increasing real RevPAR between 1987 and 2006, 1991 still ranks as the lowest year for the Manhattan lodging market; 2003 was only marginally better from a cyclical point of view, said Mr. Woods. Real RevPAR fell 19.8% below its long-term trend in 1992, compared with a drop of 18.5% in 2003.
Manhattan`s lodging market is about one-third of the way up the recovery phase of its cycle. Typically, upswings from trough to peak are longer in duration than downswings, said Mr. Woods. Manhattan`s most recent upswing, which began in 1992 and ended in 2000, lasted eight years. Its most recent downswing lasted three years. An examination of the cyclical nature of hotel market performance reveals that the average duration of the upswing for full-service hotels in the top 50 markets throughout the country is 6.6 years, with a standard deviation of plus or minus 1.7 years. In other words, there is a 68% likelihood that the average upswing will last between 4.9 and 8.3 years. The average downswing from peak to trough is 4.6 years plus or minus 1.9 years. The duration of the average cycle, from peak to peak or trough to trough, is 11.5 years plus or minus 2.1 years.
One of the report`s most surprising findings is that the financial district`s lodging sector, despite the events of September 11th, is likely to be the least volatile sub-market in all of Manhattan over the next two to three years. (The Financial District includes hotels south of 15th Street). Upper Manhattan, which includes hotels north of 58th Street, is likely to be the most volatile neighborhood in terms of forecast RevPAR, said Mr. Woods.
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