A recent article detailed the almost stunning fall of New York City hotel prices, both at the retail and at the commercial level. The article discusses the nearly 50 percent drop in room prices that have been experienced since 2015 in a city that may be the most overbuilt in terms of hotel rooms of any in the U.S.
Oversupply Causing Price Drops
One of the most prominent examples of the kinds of price declines that have been seen throughout the New York hotel market is the Viceroy Hotel, a middle-of-the-road hotel at 157 West 57th Street. That hotel last sold for $143 million in 2013, a number that represented $620,000 per room. This year, the hotel sold for just $41 million or $170,000 per room, representing a huge decline in value of more than 70 percent. And this has occurred over the course of five years in a real estate market that has traditionally seen double-digit year-over-year appreciation.
Things Are Changing
But there are two main factors that point in the direction of a market bottom for New York’s hotel industry. The first is the fact that there has been a dramatic slowdown in new room construction. In 2007, there were about 73,000 hotel rooms in the city, a figure that represented a significantly under-built market. But by 2013, that number had exploded to more than 115,000, nearly doubling the city’s hospitality capacity.
Unsurprisingly, this led to a decline of nearly 50 percent in the average price of a hotel room throughout the city even as tourism and business travel soared throughout the region. But as demand has continued to increase year over year, it is likely that the market will once again need to begin adjusting the prices of hotel rooms upward.
Another main factor in the decline of both the average cost of rooms and the prices that commercial hotel properties command on the market has been the advent of Airbnb. The company counted New York City as its most thriving market as recently as a couple years ago. However, the city, where it is illegal to rent out any room for a term of fewer than 30 days without the proper hotel licensing, has begun cracking down on the appearance of bootleg hotels. It is anticipated that the hotel rooms that had been left vacant by Airbnb will once again be in demand soon.