‘Hot’ Hotel Market’s Really Just 98.6 Degrees

In 1968, when Rudy Guiliani was finishing law school at N.Y.U. and a regular subway ride cost 20 cents, New Yorkers and tourists paid less than $25 on average to rent a Manhattan hotel room for the night. Nearly 40 years and at least one generation later, that rate has mushroomed more than 11 times over.

Over the same four-decade period, occupancy rates have stayed at 70 percent or higher, with the current, year-to-date rate at 75.9 percent, according to PKF Consulting, a firm that tracks hospitality data for markets throughout the United States.

Such splendid recent numbers for the Manhattan hotel market have had the media and analysts in a competition for at least a year now to see who can generate the most synonyms for “hot.” (More than 3,000 results turned up in a Nexis search of American newspapers for the combination of the words “Manhattan,” “hotels” and “hot.”)

But the current, post-Sept. 11 performance of the industry is merely normal, tethered as it is to a trend dating back to Mayor Lindsay’s administration.

In the last 40 years, with a handful of exceptions, the average room rate for a Manhattan hotel has increased year over year, every year. Blips registered during the early 1990’s national recession, minor drops by a few cents on average in the early 1970’s, and a precipitous drop following Sept. 11 are the only exceptions. (And, even adjusting for inflation, the room rates those times remained rather high for Manhattan; for instance, the median household income by 1980 in the borough was $13,904, according to the Census Bureau. The average room rate was $68.75.)

And, despite the relentless increase in the costs of getting a room for the night, the demand for hotel rooms has remained consistently high. The occupancy rate hit a still-formidable nadir in 1975—65.4 percent, according to PKF—the same annum the city’s finances famously imploded and President Ford, according to Daily News headline wags, told Gotham to “drop dead.”

If that’s the worst that can happen to the industry—if, on a given night, nearly two-thirds of Manhattan’s hotel rooms are full—then the current flood of fine statistics shouldn’t be at all surprising.

Those fresher statistics include a record-high occupancy rate, but one that’s comparable to occupancy rates in the late 1970’s. In 2005, the occupancy rate topped 86 percent, an increase from 83 percent the year before and the trumpeted signal that the hotel industry had recovered from Sept. 11’s deleterious effects on tourism. In 1979, the occupancy rate was running as high as 87 percent.

And the room rates—by and large, it’s never really been cheap to rent a room in Manhattan. In 1968, it cost an average of $21.86 a night, and, 30 years later, the average would cross the $200 threshold, never looking back, save for the two years immediately after Sept. 11.

The rise in both room rates and occupancy comes, too, as more hotel development than in recent memory washes through New York.

Developers—from chains like Hilton and Sheridan to boutique names like André Balazs and Ian Schrager—are expected to create at least 5,000 hotel rooms by 2008, according to City Hall’s tourism marketing wing. Such development seems unlikely to slake demand, at least not until tourism ebbs, as it inevitably does. (How many peak tourism years like 2006, when 44 million people visited New York, can the city have?)

So, disregard the especially rosy news about the Manhattan hotel industry. It’s heatedly normal.