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NYC’s boutique hotels poised to draw more travelers—and investors

July 25, 2018

By Michael Moctron

A big first quarter and other trends bode well despite Airbnb and foreign policy headwinds.

Googling “boutique hotel Midtown Manhattan NY” yields a whopping 713 lodging options. This is a recent development as the city is seeing a boom in boutique hotels, which are defined as small hotels with between 10 and 100 rooms, upscale accommodations, and unique selling points or a theme. Many also have restaurants that reflect the ambiance and culture of the hotel.

Much of this can be attributed to a change in the average New York City visitor. Historically, hotels have had a harder time filling rooms on weekends than on weekdays. However, data from STR show weekends are now generally seeing higher prices (as measured by average daily rate) and higher occupancy rates, which suggests that city visitors are now more leisure travelers; indeed, a 2017 US Travel Association report noted that leisure visitors comprise a healthy 79% of Big Apple travelers.

 NYC visitors 2016 2017
Leisure 47.9 million 79.2% 49.8 million 79.3%
Business 12.6 million 20.8% 13.0 million 20.7%
Total 60.5 million 100% 62.8 million 100%
Source: NYC & Company, 3/2018

This is good news for the boutique hotel industry, which caters to the leisure market. Boutique hotels usually charge a premium for rooms, and business travelers’ companies are usually not inclined to cover these costs. The standard hotel occupancy rate in the city is 86.7%, and overall in the U.S., boutique hotels enjoy a higher occupancy rate than other hotel categories.

If developers and operators are to maintain these high rates in 2018, the 4,000 boutique hotel rooms in New York City would need to attract 1.3 million visitors. According to NYC & Company, 65.1 million visitors are expected this year, which means boutique hotels would need to capture 2% of the market. They comprise 3.5% of the city’s hotel supply, so this seems achievable.

Nothing is guaranteed, of course. Risk factors for boutique hotels and the whole hospitality industry include perception of the U.S. as unfriendly to foreign travelers, stemming from the nation’s current foreign policy and media narrative, exchange rate issues, and the ever-present risk of natural disasters and terrorist threats.

Despite the disruption from Airbnb, occupancy rates for New York City hotels are growing and anticipated to continue in that direction, at least for the near term. The expectation is for the current supply of hotels as well as those scheduled to open in the next few years (22 hotel openings are anticipated in 2018, adding 5,000 rooms) to be fully absorbed by visitors.

Boutique hotels should enjoy the same occupancy trends. The flip side to this is the average daily rate, which has declined or remained steady throughout 2016 and 2017. However, the first quarter of 2018 was a breakthrough, with hotels experiencing a 3.5% increase in that rate.

The increase in average price per room was led by the luxury hotel class. The pricing for the 713 search results ranged from $53 to nearly $1,000 per night. The recent indicators of the return of “pricing power” to city hoteliers may be a great sign for boutiques.

With the hotel market’s overall positive performance, hotels continue to be an acquisition target for both institutional investors and private equity nationally. As one of the most significant hotel markets globally, New York City remains a key investment target. Hoteliers should focus on differentiating their offerings to attract this investment capital, and a well-designed boutique hotel is the way to do it.

This article was originally published by Crain’s New York on July 25, 2018.

Click here to view original article.

 


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