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With Prices Down $200 Per Room, NYC Hotels Brace for More Pain

October is often New York hotels’ busiest month. Last week, occupancy was hovering under 40 percent.

(Bloomberg)—The Midtown Hilton has been closed since March. Same for The Edition, a brand new Times Square boutique. You can get a room at the Pierre, just don’t expect the full-suite of white-glove services that have made the hotel a Manhattan landmark since 1930.

Autumn in New York, a season so inviting that it inspired a jazz standard, is grim this year, with the city’s tourism market among the worst in the U.S. The pandemic has canceled live events like Fashion Week and the New York City Marathon, repelled business travelers and international visitors and blown gaping holes in a tourism market that generates $70 billion in economic activity in a typical year.

Things are better now than they were in March, the worst month in memory for the city’s hotel industry, but they’re still historically bad. At this point, more than 200 of New York’s roughly 700 hotels are closed, at least temporarily.

Across the U.S., the coronavirus is pushing hotels to the brink, putting 870,000 hotel employees out of work and raising the prospect that thousands of hotels may never reopen. It will take years for the industry to recover.

“Next year is going to be far worse than any year we’ve ever had except this one,” said Lukas Hartwich, an analyst at real estate research firm Green Street. “It’s going to be 2022 before we get back to where we were during the worst part of the last recession.”

Prices Drop

October is often the New York hotel market’s busiest month. The occupancy rate clocked in at 92% and the average daily rate ran $336 in 2019. Last week, the average daily price for a room was $135 and occupancies were hovering under 40%, according to lodging data firm STR. Local players say that number is inflated because many hotels have stopped reporting data, while others are relying on government contracts that won’t last forever.

The problem isn’t just the cancellation of mass events. Risk-averse corporate travel departments are keeping employees from hitting the road. Government travel restrictions that require visitors from many states to quarantine for 14 days upon arriving in New York pose another huge barrier for tourists and corporate travelers alike.

“The true hotel occupancy is less than 10%,” said Vijay Dandapani, chief executive officer of the Hotel Association of New York City. “Hotels have theoretically been able to be open, but in many cases it’s pointless.”

Industry executives say as many as 20% of the city’s rooms may permanently close. The Omni Berkshire Place, the midtown hotel where Richard Rodgers and Oscar Hammerstein wrote the musical Oklahoma!, has told guests that it will never reopen.

Fewer Services

Many of the hotels that have opened are operating with reduced services. At the Pierre, for instance, the concierge clocks out at 5 p.m. and room service typically stops after breakfast -- though general manager Francois-Olivier Luiggi said the hotel can often accommodate a la carte requests.

The picture is somewhat brighter in other places. By Memorial Day, couped up Americans were busting out of quarantines and booking into beach resorts and other regional destinations, driving a hotel recovery in places like Galveston, Texas, Virginia Beach and Panama City, Florida. But travelers continue to shun urban markets, and a uptick in virus cases in New York has dashed hopes for a quick rebound.

“It would be a bad bet to say that New York isn’t going to come back,” said Dan Peek, president of the hotel group at advisory firm Hodges Ward Elliott. “But it does face some unique challenges that will likely result in a slower recovery.”

Looking for Business

New York hotel owners are now left looking for business wherever they can find it. Some have contracted with the city’s Department of Homeless Services to convert properties into temporary shelters, though those moves have created backlash from local neighborhoods and risk damaging a hotel’s reputation.

Others are offering hotels as auxiliary dormitories to local colleges and marketing rooms as places where displaced office workers can concentrate or where hospital patients can recover without worrying about exposure to the virus.

At the Lotte New York Palace, a five-star hotel where the upper floors look down on St. Patrick’s Cathedral, management is hoping that the pandemic will offer the chance to win new customers. It redecorated its penthouse suites and is allowing frequent guests to reserve a permanent room that no one else can occupy.

“We’re seeing some new guests who are finding us for the first time,” said Rebecca Hubbard, the hotel’s general manager. “They walk in and say, ‘oh my gosh, I didn’t know what a grand hotel this was.’”

Still, that goes only so far. “It’s not very busy,” Hubbard acknowledged.

© 2020 Bloomberg L.P.

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