Why N.Y.C. Hotel Rooms Are So Expensive Right Now

In late 2022, as thousands of migrants began to arrive in New York City, city officials scrambled to find places to house them. They quickly found takers: hotels that were still struggling to recover from the pandemic-driven downturn in tourism.

Dozens of hotels, from once-grand facilities to more modest establishments, closed to tourists and began exclusively sheltering migrants, striking multimillion-dollar deals with the city. The humanitarian crisis became the hotel industry’s unexpected lifeline in New York; the hotels became a safe haven for tens of thousands of asylum seekers.

Two years in, as the city’s peak tourism season is about to begin, the migrant crisis has helped dramatically shift the hotel landscape in New York. The conversion of hotels to shelters has sharply decreased the supply of rooms just as tourist demand has risen, nearly to prepandemic levels, and is projected to match a record high.

The migrant shelters — along with other factors that include inflation, the loss of Airbnb short-term rentals and an expected decline in new hotel construction — have propelled the nightly cost of an average room to record levels.

The average daily rate for a hotel stay in New York City increased to $301.61 in 2023, up 8.5 percent from $277.92 in 2022, according to CoStar, a leading provider of commercial real estate data and analysis. During the first three months of 2024, when prices traditionally dip, the average stay was still 6.7 percent higher than during the same time period last year: $230.79 a night, up from $216.38 in 2023.

About 135 of the city’s roughly 680 hotels entered the shelter program, with many congregated in Midtown Manhattan, Long Island City in Queens and near Kennedy International Airport — all traditional magnets for tourists. Participating hotels are paid up to $185 a night per room, according to the city. Not a single one has converted back into a traditional hotel.

The Midtown hotels include the Row NYC Hotel, a four-star hotel in the middle of the theater district, and the century-old Roosevelt Hotel near Grand Central.

The use of city hotels for migrants represents a loss of 16,532 hotel rooms, leaving 121,677 hotel rooms for travelers, according to data compiled by CoStar, a leading provider of commercial real estate data and analysis.

That’s 2,812 fewer hotel rooms than existed in the period just before the pandemic — a shortage that is being acutely felt.

“During peak periods, try getting a hotel on a Tuesday, Wednesday or Thursday night in midtown Manhattan, and, if you can, you could end up paying dearly,” said Daniel H. Lesser, a co-founder of LW Hospitality Advisors. “It’s all supply-and-demand related, and the migrant rooms have reduced the amount of supply.”

About 65,000 migrants are being sheltered in hotels, tent dormitories and other shelters, in large part because of the city’s legal obligation to provide a bed to anyone who needs one. The city projects it will spend $10 billion over three fiscal years on the migrant crisis.

Beginning in late 2022, the city entered into a contract of up to $980 million with a hotel trade group to pay hotels that decide to shelter migrants under its “Sanctuary Hotel Program.” City officials said the hotels receive between $139 and $185 a night per room, whether or not the room is occupied, guaranteeing them a fixed stream of income. (Those rates do not include money the city is spending on food and other services for migrants; there have also been reports of hotels being paid more than $185 a night.)

Many of the hotels-turned-shelters, some of which were deep in debt, facing foreclosure or had received poor reviews from guests, catered to budget and middle-class travelers. While many were independent hotels, about half of them carried brand names: Courtyard, Holiday Inn Express, SpringHill Suites, Super 8.

Since migrants are mostly taking up the city’s more affordable hotel rooms, mid-market tourists are most likely to see the steepest increase in prices, according to Sean Hennessey, a hotel industry adviser and clinical associate professor at New York University.

“I really believe it’s enabled two-, two-and-a-half-star hotels to be a little more emboldened, to take advantage of the situation and charge prices that perhaps they wouldn’t otherwise be able to,” he said.

Other factors, including some driven by policies that Mayor Eric Adams and his predecessor, Bill de Blasio, supported, have also contributed to higher room rates.

In September, city officials began to enforce a new law meant to curb the proliferation of short-term rentals, such as those listed on Airbnb, which used to account for over 10 percent of all tourist accommodations in the city. The crackdown obliterated most short-term Airbnb listings — a phenomenon that some observers said might have had an even larger impact on hotel rates than the migrant crisis.

The number of Airbnb listings in New York City for short stays — under 30 days — plummeted by 83 percent to just 3,705 apartments in March 2024, down from 22,247 listings in August 2023, the month before the law went into effect, according to AirDNA, an unaffiliated company that collects data from short-term rental listings. Most of the remaining Airbnb listings in the city, about 90 percent, are only available for stays of over 30 days.

The law, Local Law 18, was aggressively backed by the hotel industry and the hotel workers union, both supporters of Mayor Adams. Not surprisingly, analysts say, the demise of short-term rentals has driven up demand for hotel rooms and has emboldened some hoteliers to increase prices.

“It was expected,” said Jamie Lane, the chief economist at AirDNA. “That is why the hotel lobby was pushing for this law to happen, so they could have higher rates and increase profitability of their properties.” (Supporters of the law argued short-term rentals were exacerbating the city’s housing shortage.)

New construction may not ease the strain. While there are more than 8,000 hotel rooms in the pipeline, significantly fewer are expected in the long run, according to analysts and developers. That is because of new zoning rules and special permits, also backed by the influential hotel workers union, that have restricted hotel development, making it more expensive to build and operate hotels.

In a statement, a spokeswoman for Mr. Adams, a Democrat, attributed the rise in hotel rates to the increase in tourism — about 62.2 million people visited the city last year, just below the record 66.6 million in 2019 — rather than the mayor’s policies.

“The return of tourists to New York City is reflected at hotels as well, where demand is up,” the statement said. “New York City is safer, cleaner and, as the numbers show, continues to be one of the most popular destinations in the United States.”

The occupancy rate for hotel rooms last year was 81.7 percent, significantly higher than the 46.7 percent low of 2020, but still not as high as 2019, when 86.2 percent of hotel rooms were occupied, according to the Hotel Association of New York City, a trade group.

The hotels being used as shelters are scattered across the five boroughs, from a 76-room Sleep Inn in the Bronx to the Staten Island Inn, which has 93 rooms. City officials noted that 32 of the hotels are housing both migrants and about 6,000 homeless New Yorkers.

There are notable clusters. More than two dozen hotels are in the vicinity of the Jamaica neighborhood of Queens, and Kennedy International Airport. Another 19 hotels are in and around Long Island City, the rapidly growing neighborhood on the Queens waterfront.

A large concentration — 22 hotels — is in the tourist-centric Midtown Manhattan area: in Times Square, near Grand Central Terminal, by the Empire State Building or in the theater district.

Indeed, the four largest hotels housing migrants — with more than 3,500 rooms combined — are in the heart of Midtown. Those large hotels were mostly older buildings becoming obsolete or in the financial doldrums. The migrant crisis seemed to reverse, or temporarily salvage, their fortunes.

In October 2022, the Row NYC Hotel in Times Square, which opened as the Hotel Lincoln in 1928 but was in financial straits during the pandemic — became the first and the largest hotel converted into a shelter. It struck an initial $40 million deal with the city to house thousands of migrants in its 1,331 rooms at $190 a night. (Rooms reportedly ranged from $300 to $500 the month before it opened as a shelter).

The Roosevelt on East 45th Street, named after Theodore Roosevelt, also emerged as a symbol of the humanitarian crisis. The hotel, which is owned by Pakistan’s national airline, had closed in 2020 during the pandemic, but reopened in May 2023 after signing a contract with the city. Its once-grand lobby is now the main processing center for migrants. Thousands of migrants live upstairs in its 1,025 rooms.

The hotels housing migrants are required to provide trash pickup on a daily basis, housekeeping every other day and fresh towels and linens at least once a week, according to several hotel contracts reviewed by The Times.

Under its contract with the Hotel Association of New York City, which runs until Aug. 31 and is likely to be renewed, the city can spend up to $980 million, but that does not mean that it will, according to city officials and industry leaders. The financial commitment could change depending on migration patterns and the duration of the crisis.

“If the migrant situation gets better, we’ve made clear to hotels that are enrolling in the program that, you know, you could potentially be out of the contract with a month’s notice,” said Vijay Dandapani, the president and chief executive officer of the hotel association.

Mr. Dandapani stressed that his association was not profiting from the city contract, but rather playing the role of negotiator between the city and hotels. He declined to say, however, how much the city had paid hotels so far.

Any hotels that decide to reopen their doors to tourists will have to undertake expensive renovations to repair the wear and tear from operating as shelters. And some hotels have already indicated they will permanently shut down after their shelter contracts run out.

“Some of them will not come back into the hotel industry,” Mr. Dandapani said. “Period.”

#N.Y.C #Hotel #Rooms #Expensive

About The Author

Leave a Comment