Where are the deal opportunities in New York City?

With all eyes on New York City, JLL has launched its NYC State of the Lodging Industry report with data about the market’s lodging performance and supply dynamics, which it said is resulting in robust hotel liquidity.\

Stephany Chen, senior director, JLL Hotels & Hospitality Group, told Hotel Investment Today, “The New York City lodging market’s performance continues to lead the nation with favorable supply dynamics, which has resulted in robust hotel liquidity. We anticipate investors to continue to focus on NYC in 2024 and prioritize acquisitions over development during the short-to-medium term given the cost-to-buy is significantly less than the cost-to-build.”

Key takeaways from the report include:

Strong Market Fundamentals: NYC RevPAR led top-25 U.S. markets in 2023

• Driven by the highest ADR in the market’s history, New York City RevPAR reached historic heights in 2023, exceeding 2019 levels by 15.2%.
• Expect continued growth in 2024 underpinned by the resurgence of international travel (China’s group travel ban was lifted in August 2023) and the reemergence of group and business demand

Favorable Supply Outlook: Zoning changes and short-term rental restrictions to benefit existing hotels

• Following a decade of historic growth, NYC hotel supply is expected to grow at an average annual rate of 1.6% over the next three years, 140 basis points less than the prior ten-year average. This deceleration of new supply is driven by the recent Citywide Hotel Text Amendment, rising construction costs, and challenges with development financing.
• Existing NYC lodging supply has already been impacted by the 16,000 rooms taken out of inventory for asylum seekers and the recent restrictions imposed on short-term rentals.
• Look for the deceleration of new supply combined with the contraction of current supply to benefit existing hotels by as much as 2.2 million incremental room nights in 2024, or $7.35 in RevPAR

 Robust Hotel Liquidity: Foreign capital reemerges to drive transaction volume to eight-year high

• NYC hotel transaction volume soared to $3.3 billion in 2023, the market’s highest total since 2016. Investors are gravitating towards the market driven by its strong fundamental performance and expectations of further growth.
• Foreign capital, driven by Asian and Middle Eastern investors, has emerged as the largest acquirer of hotel assets following nearly three years of minimal activity. Look for these groups to continue to be acquisitive, particularly in the luxury space, as debt market volatility persists.

Rising Development Costs: Discount to replacement presents opportunity for hotel investors

• Driven by rising construction costs and ongoing supply chain disruptions, NYC development cost per key for full-service hotels has soared to $796,000 in 2023. While acquisition costs are on the rise, the cost-to-buy is still significantly less than the cost-to-build.
• Look for investors to prioritize acquisitions over development over the short-to-medium-term which should further fuel NYC hotel liquidity.