NYC's Brutalized Hotel Market Still Facing Slew Of Obstacles

Travel restrictions and a slow return to the office are hitting New York's hotel market hard, just as the city reaches what would normally be peak tourist season.

“You're just treading water,” said John Fitzpatrick, who owns and runs the Fitzpatrick Manhattan and The Fitzpatrick Grand Central.

The 155-room Fitzpatrick Grand Central on East 44th Street remained open through the coronavirus pandemic. The Fitzpatrick Manhattan, a 150-room hotel at 687 Lexington Ave., was closed throughout the pandemic but was reopened in May. It is now operating at around 65% occupancy during the week, and it could reach up to 80% on the weekends. It is really not enough for a boutique hotel, Fitzpatrick said — occupancy needs to be above 90%.

“What’s really killing us is not international travel, we really need that; it helps you get your occupancy up and also gets you a better rate.”

Certainly, the entire industry is facing enormous challenges. Revenue per available room increased by more than 100% between the second quarters of 2020 and 2021 to reach $95.65, according to PwC’s Manhattan Lodging Index. However, comparing the current rates to before the pandemic tells a different story; in the first half of this year, RevPAR was still down 65% on the same period of 2019.

“We're trending around 60% [occupancy] right now, which is not even a clear indicator of what the real problems are, because it doesn't account for an almost 45% drop in revenue, because it's not just occupancy — it's the rate that's horrible right now,” said Vijay Dandapani, the CEO of the Hotel Association of New York City.

PwC’s report said the delta variant’s hampering of office reopenings in New York City leaves a question mark hanging over the second half of this year as well. 

Vast numbers of hotels temporarily closed at the start of the pandemic for more than a year, and some closed permanently, including the Roosevelt, the W Hotel Downtown and the Maxwell Hotel. However, by May this year many hotels were forging forth to reopen their doors after more than a year, including the Plaza, the Mandarin Oriental New York and The Ritz-Carlton New York. Restrictions like mask mandates and capacity caps were replaced with vaccination requirements, and New York City launched a $30M marketing blitz to lure people back to the city.

But as companies have pushed back their return to the office amid ongoing concerns about the virus, business travel is still not back to levels the hotel industry counts on. Two-thirds of companies pushed back their return dates from Labor Day to Q4 or 2022, according to a survey of 238 executives conducted in late August by human resources consulting firm Gartner.

Plus, ongoing U.S. travel bans on places like the U.K. and Europe are continuing to vex the industry.

“These are an example where federal policy makes zero sense, absolutely zero sense,” Dandapani said. “It's very difficult to restore things to status quo because international travel is still not permitted.”

During the first quarter of 2021, New York air traffic levels were down 66% on the year, per PwC citing Port Authority of New York and New Jersey data.

International traffic was down by around 77% during the quarter. A total of 8.6 million passengers went through Newark Liberty International Airport, LaGuardia International Airport and John F. Kennedy International Airport in Q1, which is 16.8 million fewer than the year before.

The sluggish numbers have meant some have delayed opening altogether. Brenda Correa, the general manager of Iberostar 70 Park Avenue, a 205-room hotel that has been closed since March last year, told Bisnow in April the hotel was eyeing a July 1 reopening. But without big international tourist demand, the operators have opted to take a wait-and-see approach and have kept the hotel closed for the time being.

“We are mostly known as an international brand rather than for the domestic market … We’re trying to open before the year ends,” she said on Wednesday. “Hopefully November, keeping our fingers crossed.”

Right now the hotel is operating with around 12 people on staff, but would normally have more than 70 people working there.

Glimmers of hope are there. Broadway has begun reopening this week, with shows like Hamilton, The Lion King, Wicked and Chicago now showing for people who are vaccinated and wearing masks. New York City schools reopened for in-person classes, which is considered to be a boon for the city’s recovery and reopening.

Fitzpatrick said it is impossible to make money with hotel occupancy under 70%, but he expects once the restrictions lift there will be a massive jump in demand.

“We think there would be a huge surge once it's opened, because people have been [here] for two years.”

Loews Regency New York reopened in May after being closed for 13 months and is performing well, according to Managing Director John Maibach. The hotel at 540 Park Ave. has 379 rooms, and Maibach told Bisnow in April that staff had been monitoring website traffic and future bookings to give them the certainty they need to reopen. So far, the results have been great, he said in an interview last week.

“It was a quiet first week. But since then, it's been much better than we expected. Certainly nowhere near pre-pandemic levels, but the volume of business we've had since the middle of May till today far exceeds what we thought it would be when we were putting forecasts together prior to reopening,” he said, adding that over the Labor Day weekend the hotel ran at over 80% occupancy.

There is little corporate travel happening, but midweek travelers are coming, there has been a jump in long-term stays and people are making block bookings for the weddings that have been canceled throughout the pandemic, Maibach said.

People are also returning for elective surgeries that were canceled in the worst of the pandemic. In all, the Loews Regency has had three sold-out nights since reopening. And without international travelers, what Maibach calls the “drive market” — people coming to New York from a drivable radius — is filling the void.

“We aren't disappointed with where we sit today,” he said.