New York Hotel Occupancies Expected to Drop Due to Recent Crisis on Wall Street

According to Business Travelers News Online, analysts said it’s still too early to tell the level of impact it will have on New York hotels, but buyers, already in the midst of negotiations for 2009 rates, now are adjusting their expectations for the market.

“We’re definitely going to use this to our advantage,” said Debra Goldmann, senior specialist for Verizon Travel Services. “We didn’t expect a decrease at all until the airline capacity cuts, but this will be quite a change to hotels.”

About 20 percent of revenues in the Manhattan economy come directly from Wall Street, said John Fox, senior vice president of PKF Consulting in New York. “There will be a lesser amount of business than there was last year, but how much of a downward motion, we don’t know,” he said.

Siemens Shared Services director of travel management Steven Schoen said he already had received first-round rates from New York hoteliers and now plans to bring them back to the negotiating table.

Prior to recent events, the industry expected New York to remain challenging for buyers this year, although less so than in previous years. BCD Travel had forecast an average 6 percent increase, rather than the double-digit percentage increases of the past few years, in New York hotel rates for 2009. That now almost certainly will change, said Kathy Pruett, senior director of consulting at the agency’s consulting arm, Advito.

“Buyers will really need to take a look at the rates from the properties in those areas,” she said. “The financial companies are such big consumers in that midtown and downtown area that it’s bound to have a big impact.”

One financial services company buyer told BTN that she now expects to hold about half of the company’s New York City hotel rates flat in 2009, with the rest increasing between 4 percent to 5 percent.

The impact will hit beyond transient travel, Pruett said. “Some of the large hotels downtown and in midtown do a lot of meetings with financial companies like Lehman, so there will be a double hit in the meeting blocks,” she said. “I imagine those hotels are scrambling to determine what to do.”

Hoteliers also do not yet know the degree of impact. One New York hotelier said that company leadership asked him to re-examine rate expectations for 2009.

Still, buyers should not underestimate the New York market’s resilience, PKF’s Fox said. New York hotels still were strong up to the point of the Wall Street collapse, with revenue per available room up 5 percent to 10 percent from 2007, mostly driven by rate increases but also by a small occupancy increase, he said.

“When you run occupancy like New York has been running, we were essentially sold out 200 to 250 nights a year,” Fox said. “It leaves a lot of room for some softness and for it still to be pretty strong.”

There’s also the question of just how much travel the financial services industry will cut, said Bobby Bowers, senior vice president of operations for Smith Travel Research. “It would be somewhat limited, just because of the fact that, especially for Lehman and some of the other companies, some of the businesses they had in place will be purchased by other companies,” he said.

In addition, inbound international travel, particularly leisure travel boosted by the weak dollar, would continue to be strong in New York, Fox said. The U.S. Department of Commerce this month reported that international travel to the United States during the first half of 2008 increased 11 percent annually.

Outside of rates, the key shift in the New York market might now be the opportunity for some buyers to develop programs in hotels that were heretofore unattainable. “For sure, there will be the opportunity for some new buyer-supplier relationships, and it certainly will boost competition,” Verizon’s Goldmann said.

In the long term, buyers should be more cognizant of the overall U.S. hotel industry impact, STR’s Bowers said. Even before the events of recent weeks, overall hotel RevPAR was expected to grow by only about 1 percent this year, and the Wall Street turmoil will give an even bigger hit to consumer confidence, he said.

In the early stages of negotiations, it now appears, outside of key gateway and international cities, buyers generally should see flat to 3 percent increases in hotel rates in 2009, said Neysa Silver, director of Carlson Wagonlit Travel’s hotel solutions group. At the same time, a few CWT clients who are shifting from a calendar year to a fiscal year are having little trouble convincing hotels to merely roll over the current rates to that program, she said. “Last year, we had a really difficult time achieving just rollover rates,” she said. “There certainly are signs hotels are being softer.”

Source BTN