How, Where And When NYC's Hotel Industry Will Feel The Impacts Of New Airbnb Rules

The first week that New York City’s law severely restricting short-term rentals was in effect didn't produce a higher-than-usual boost to hotel performance, according to early data, but hotel industry leaders expect that in the longer term, the ban will be a boon.

“It will absolutely increase the demand for hotel rooms, which is something that makes me happy,” BD Hotels principal Richard Born said.

Local Law 18 went into effect on Sept. 5, and New York City hotel occupancy was at 88.6% the week of Sept. 3-9, according to STR data obtained by Bisnow, while average revenue per available room was $308.85 and the average daily rate was $348.40.

All of those numbers were jumps from the week prior, which saw occupancy of 86.2%, ADR of $283.80 and RevPAR of $244.50, per STR. But that jump is in line with those same weeks in 2022: Occupancy rose from 81.3% between Aug. 28 and Sept. 3, 2022, to 85.5% Sept. 4-10 that year. ADR jumped from $271.62 to $323.67 over that same period in 2022, and RevPAR rose from $220.70 to $276.42, according to STR data.

The lack of immediate impact didn't surprise industry leaders. Airbnb will cancel reservations for unregistered hosts starting Dec. 2 this year, so hotels might get a boost after that moment, Hotel Association of New York City President and CEO Vijay Dandapani said.

The law all but bans the traditional short-term rental host model pioneered by Airbnb and VRBO. Hosts have to register with the city, and if they’re renting out a living space for under 30 days, hosts must live in the unit. They can’t have more than two guests staying with them, and guests must be able to access the entire living space.

Airbnb declined to comment to Bisnow about the effect of Local Law 18, but a spokesperson said that no individual city it operates in accounts for more than 1.5% of its revenue. The Mayor’s Office of Special Enforcement didn’t respond to Bisnow’s request for comment on its plans to enforce the law.

In dramatically reducing the number of short-term rental options, Local Law 18 effectively shrinks the city’s supply of budget tourist accommodations.

Some short-term hosts will still find ways to rent rooms, Gothamist reported. Over the past month, listings have appeared on Craigslist, Facebook Marketplace and vacation rental agency Houfy.

But after years of being battered by the pandemic, hotel industry players say the legislation will likely boost existing hotels as tourists seek out places to stay — even as tourism numbers and hotel occupancy remain below their pre-pandemic levels and trail cities like London and Paris.

The impacts will be felt down the road, LW Hospitality Advisors co-founder, President and CEO Daniel Lesser said.

“The notion of Airbnb being available has definitely limited the pricing power of the hotel industry,” he said. “You take that away, and there's even less inventory. It's going to only enhance the pricing power during high levels of occupancy.”

Jay Morrow, managing director of Hodges Ward Elliott’s New York Hospitality Investment Advisory practice, said hotels could see a bump in business even before December.

“Once you really get into mid- to late October and into November, even this year, you're going to see an impact,” he said.

Plenty of tourists may have trips planned to see New York’s fall foliage or for Thanksgiving without yet booking accommodation, he said.

“There are still people that would be booking.”

Experts said they were certain that Airbnb’s loss will be Manhattan’s gain. Airbnb's spokesperson told Bisnow that the majority of its NYC listings are in Brooklyn and Queens, where there are fewer hotels — meaning more tourists will be pushed back to Manhattan.

Additionally, experts said that short-term rentals mostly serve budget travelers. That is in part because hotel room rates in NYC are among the highest in the country — and in part because of a 2010 law outlawing youth hostels. But because of that dynamic, luxury and high-end hotels are unlikely to receive tourists who might otherwise book a short-term rental.

That’s just as well because budget hotels need the boost in business, Dandapani said. Many are relying on government contracts to house the tens of thousands of migrants who have arrived in the city over the past year to remain at 100% occupancy, prioritizing consistent but lower revenues over low occupancy at market rates.

“If you're a high-end hotel, you're doing very well,” Dandapani said. “You're fine if you're The St. Regis, the Baccarat, the Mandarin Oriental, The Plaza. Right now, almost every hotel catering to the migrant business is from the mid- to lower scale. They are the ones who are sucking wind.”

The size of a low-end hotel is what dictates whether or not it is taking on government contracts or might have free rooms to offer to would-be Airbnb guests, Besen Partners Director for Hotel Advisory Group Anudeep Gosal said.

“When it comes to assets that are below 100 keys, owners are seeing that hotel performance is strong enough that they may or may not have to take migrant or refugee business,” he said. “Assets that are 100 keys plus tend to go for migrant and refugee business, just because it's 100% occupancy.”

Supply constraints could also create higher pricing for some hotel owners, especially as tourists return to the city. Some 63 million tourists are expected to pass through NYC this year, according to research from the city government's official tourism promotion agency, NYC & Co.

That is roughly 3 million fewer visitors than in 2019, largely owing to the fact that Chinese tourists and business travelers haven't yet returned at pre-pandemic levels, Dandapani said. But even with fewer tourists, fewer accommodation options will still mean higher prices because supply is already down.

The city lost 12,000 hotel rooms over the course of the pandemic, Gosal said. That is in addition to the city’s 2021 zoning amendment requiring special permits for hotel construction, which resulted in zero applications to build hotels for a full year after coming into effect.

Additionally, some of the city’s existing hotel keys are also in the process of being eliminated this year, Morrow said. Hotel Pennsylvania, a 2,200-key hotel in Midtown Manhattan, is in the process of being demolished. The 764-key Doubletree Met is being converted into student housing, with similar plans floated for the 655-key New York Marriott East Side after it sold to new owners in January. 

“It's the capping of new supply coming in, the reduction of permanent supply that was there, plus now the reduction of shadow supply,” said Morrow, referring to short-term rentals. “When you pair all that together, it does really feel like it is going to have a lot of pricing power for hotel operators, and hopefully that benefits owners.”