How Public Policy and Economic Factors are Shaping NYC’s Booming Hotel Market

• New York City’s hotel market is leading the nation’s post-COVID recovery, with an occupancy rate of 84% and a 12-month average daily rate (ADR) of $313.39 as of Q3 2024.
• Regulatory changes and economic factors limit the addition of new hotel rooms, drive room rates higher, and create a favorable environment for hotel owners and operators.

New York City’s hotel market is currently among the nation’s leaders in post-COVID recovery, according to CoStar, with a 12-month occupancy of 84% and an ADR of $313.39. This places New York at number one among the Top 25 hotel markets in the United States. The NYC Tourism and Conventions reported 62.2 million visitors to the city in 2023, which is 93% of the 2019 total, and expects that number to reach 64.5 million visitors in 2024 and 68 million visitors in 2025.

Several market-specific factors are expected to limit hotel supply while increasing room rates. Notably, stricter regulations on short-term rentals, a newly implemented zoning text amendment and special permitting process, and both the temporary and permanent closure of tens of thousands of hotel rooms. However, labor negotiations and casino development may put pressure on rates through higher operating expenses and increased supply, respectively.

New York’s hotel market has seen some rate growth attributed to Local Law 18, a Short-Term Rental Registration Law. This law requires short-term rental hosts to register with the Mayor’s Office of Special Enforcement (OSE). It prohibits booking platforms like Airbnb, VRBO, and Booking.com from processing transactions for unregistered rentals. The law, which took effect in September 2023, has significantly reduced short-term rental listings, likely boosting hotel rates.

Furthermore, New York hotel development is expected to be constrained for the foreseeable future. Since the onset of COVID, the citywide hotel pipeline has decreased considerably by 49%, from 15,777 rooms under construction midway through 2020 to over 8,000 rooms under construction as of October 2024.

New York City currently has approximately 43,650 permanently or temporarily closed hotel rooms. As of October 2024, over 16,000 hotel rooms citywide were being temporarily leased to house refugees, immigrants, and the unhoused. STR-CoStar data indicates that Manhattan currently has approximately 6,326 rooms, or 4% of the total supply, comprised of 22 hotels being used as temporary housing.

The recent closure of hotel rooms and the resulting increase in vacant hospitality space have also led to conversion opportunities. Cushman and Wakefield have identified approximately 7,370 permanently or temporarily closed rooms that have recently been or are expected to be, converted to an alternative use such as student housing, apartment rental, residential condominium, and/or office.

In August 2021, Governor Andrew Cuomo passed the Housing Our Neighbors with Dignity Act (HONDA), which provides a path for the State of New York to finance the acquisition and/or conversion of distressed hotels by nonprofit organizations to increase affordable housing.

To enhance public safety and worker protection, on July 18, 2024, the New York City Council introduced Int 991-2024 (Int. 991), an amendment to the administrative code of the city of New York, related to licensing hotels. This bill requires hotel operators to obtain a license to operate a hotel in the City, schedule staff that provide continuous coverage of their front desk, maintain the cleanliness of each guest room, equip all core employees with panic buttons and provide core employees with human trafficking recognition training among other obligations.

Finally, hotel casino development will impact supply over the next five to ten years. In March 2024, the state Gaming Commission announced a plan to issue three downstate gaming licenses in late 2025. Over ten proposals are being considered, with a minimum investment requirement of $500 million.

Both economic factors and public policy changes will significantly constrain the supply of hotel rooms in New York. Overall, the interplay of these factors suggests that the hotel industry in New York will experience a period of robust pricing power, benefiting from the limited availability of rooms and sustained demand. While certain elements, such as rising operating expenses and the introduction of new supply from casinos, may pose challenges.

Discover more at Cushman & Wakefield.