The coronavirus pandemic caused travel to grind to a halt in 2020 on a national scale, so much so that hotel occupancy rates plunged to record lows last year. Not surprisingly, investors with hospitality REITs (real estate investment trusts) in their portfolios saw the value of those assets decline.
But things have been looking up in recent months. With domestic travel restrictions lifted and coronavirus vaccines more widely available, hotels have seen a surge in bookings this summer in many markets. In New York City, however, occupancy rates remain sluggish for one key reason.
NYC hotels are awaiting the return of business travel
For the week ending May 29 (which coincided with Memorial Day weekend, a major travel period), the occupancy rate for NYC hotels was 58.7%, according to data firm STR. That's well below the 87.2% occupancy rate NYC hotels enjoyed during the same time period back in 2019.
NYC hotels are also taking in less revenue. In Miami, for example, revenue per available room came in at $323 the Saturday of Memorial Day weekend, 2.5 times the level of revenue per room during the same period in 2019. For NYC hotels, revenue per room came in at $147, which was 39% less than what those same hotels enjoyed two years prior.
Why the slower recovery? It largely boils down to New York City's heavy reliance on business travel -- something that's not expected to pick up substantially for quite some time. At this point, many companies have not yet called employees back to the office due to pandemic-related concerns, and the emergence of the highly transmissible delta variant could force some employers to postpone reopening plans (Apple, for example, is already pushing its planned September reopen back to at least October). It stands to reason that business travel, for the most part, won't be back on the table until employees are steadily reporting for in-person work.
Also, it may take some time for companies to work business travel into their respective budgets. Many companies have had to invest in coronavirus safety measures to welcome back staff, from physical barriers between desks to masks and sanitizing equipment. In an age when it's easy enough to meet with colleagues across the country or broker deals by logging into Zoom, it's harder for companies to justify the expense of business trips.
But as a metro area that serves as a corporate hub for many big-name companies, that's hurting New York City and its hotels in a very big way. In fact, CBRE projects that while hotel occupancy rates on a national level will return to pre-pandemic levels by 2023, New York City could lag behind by a good two years.
Now on a more positive note, tourism in New York City is already picking up, and it could continue to do so this fall as Broadway reopens. But all told, it could take several years for NYC hotels to see the same occupancy rates and revenue they did before the pandemic. And that's something real estate investors will need to prepare for.