JLL: NYC lodging performance leads U.S. with strong supply dynamics, hotel liquidity

New York City’s lodging performance has been holding steady and continues to lead the country with its impressive supply dynamics, a recent JLL report has said. This has resulted in strong hotel liquidity and all eyes will be on the city this year.

For the full year 2023, total transaction volume in NYC surged 56.1% from 2022 (and up 27.4% from 2019 levels) to stand at $3.3 billion, according to the December 2023 update of JLL’s NYC State of the Lodging Industry Report.

Total visitation to the city by the end of 2024 is projected to exceed 2019’s record figure by 4.5% and total 70 million.

International visitors are expected to overtake previous record numbers by the end of this year. The city welcomed around 62 million visitors in 2023, of which 9.4 million were international visitors. While last year’s visitation was 7.2% below peak levels seen in 2019, the numbers are projected to bounce and surpass by the end of 2024, the report said. This year, international visitors will rise to 20%.

Total visitation to NYC by 2024-end is projected to exceed 2019’s record.

Driven by the increase in group, corporate and inbound international demand, RevPAR in 2023 was up 15.2% from 2019 levels and is estimated to climb higher in the next four years. In 2023, NYC’s RevPAR finished at the top spot among the top markets in the U.S., driven by peak ADR growth, especially in the luxury segment.

With business, leisure and international travel expected to surpass peak levels this year, NYC will capitalize on the surge in demand, which will drive ADR even further.

In the last 10 years, hotel supply growth across NYC has outperformed the U.S. by 290 bps, which has resulted in downward pressure on the market’s occupancy and RevPAR. Increasing construction costs and new city ordinances on development will likely slow new hotel supply in the following three years, enabling existing hotels to see increased occupancy and ADR.

Hotels in the city will see the addition of 2.2 million room nights, following Local Law 18, the report said. The existing short-term rental supply is likely to plummet by 70% after the passing of the law, which is the equivalent of the closing of 107 hotels. Hotels in the city are expected to gain up to $380.4 million in revenue after the law is implemented as travelers will need guestrooms and short-term supply will see a significant decline. This may result in around $7.35 in incremental RevPAR for the hotel market.

The city generated the highest hotel liquidity since 2016 in 2023, JLL said. Driven by robust fundamental performance and the sale of several iconic luxury properties, the total number of sales touched a historical high of 34, boosting the market’s transaction volume to $3.3 billion. With RevPAR likely to grow further and the Fed’s tightening cycle coming to an end, frustrated capital will be drawn off the sidelines, the report added.

The last year saw the resurgence of foreign capital after nearly three years of limited activity due to border closures. Foreign capital was driven by Asian and Middle Eastern investors.

Soaring construction costs and continuing supply chain disruptions resulted in development cost-per-key rising to $796,000 in 2023. While there has been an increase in acquisition costs, the cost-to-buy is still much less than the cost-to-build. This presents a new opportunity for capitalized buyers to buy hotel assets in the short term.