City Hotel Rates Rising, but Occupancy Along for Ride
This article is from the archive of The New York Sun before the launch of its new website in 2022. The Sun has neither altered nor updated such articles but will seek to correct any errors, mis-categorizations or other problems introduced during transfer.

Fueled by record-low vacancy rates, the city’s post-September 11 recovery, and the conversion of several big-name hotels into private residences, average hotel room costs in New York City are outpacing inflation by several times, leading some analysts to warn that business visitors could shun the city as too costly.
Higher prices — predicted to average 36% more in 2006 than in 2003 — don’t appear to have seriously hurt the hotels’ occupancy rates, which are projected to average 85% for 2006, according to a company that provides data to the 128-year-old Hotel Association of New York City, PKF Consulting.
“You have very high demand … for rooms, which means the hotels can get away with charging almost anything they want,” the CEO of a company that publishes New York City guidebooks, Tim Zagat, said.
The average room cost is estimated to have risen 7% in 2006, to $268, up from $250 last year, according to figures compiled by PKF based on about 100 hotels.
Mr. Zagat’s survey of select upscale hotels, which his company says should not be considered definitive, shows an average per-night room cost of $524, up from $428 last year.
“We haven’t seen a phenomenon where the demand appears to be slackening at the upper levels of the hotel market,” a consultant to the industry, Sean Hennessey of Lodging Investment Advisors, said.
A Wisconsin-based consulting company to business travelers, Runzheimer International, said convention organizers have called the company to express “concern” about big-city prices.
“People are hosting their meetings where they get a bigger bang for their buck,” a Runzheimer manager, Phyllis Schumann, said.
While several prominent city hotels declined to publicize actual year-to-year room rates, overall rates are 8% higher than last year at the Grand Hyatt New York in Midtown, the hotel’s general manager, Jerry Gibson, said.
“Like every market that I’ve ever been in, our market will cycle,” Mr. Gibson, who has managed hotels all around the country since the 1970s, said. “It’s hard to know when you’re at the top of that cycle.”
Mr. Gibson concedes that 2007 will likely “be a good market for us,” and industry-wide predictions appear to support his prediction.
Even at the online discount travel site Orbitz.com, a room Friday at the Grand Hyatt costs $389 — and that’s before a 13.375% tax, $2 a day room charge, and other fees, which brings the total to $455 for a single night.
Short of entirely abandoning the idea of coming to New York City, some travelers might choose to “trade down” to less pricey hotels a step below the accommodations to which they’re accustomed, a hospitality professor at the Cornell Hotel School, Jack Corgel, said.
“If the step down is not too severe — in other words, you’re not going to a flophouse — then you’re perfectly satisfied in the hotel that you’ve chosen, even though it’s slightly lower quality,” Mr. Corgel said, adding, “Behaviors adjust when prices get over what people expect them to be.”
“Trading down” can sometimes cause a domino effect by increasing prices even in those cheaper hotels, a research director at PKF, Robert Mandelbaum, said. The prices rise because there is less supply in the cheaper hotels when more people stay there instead of more lavish hotels.
The laws of supply and demand usually restrain prices from becoming expensively unwieldy, but Mr. Corgel notes that Manhattan is unlike sprawling municipalities where hoteliers can meet heightened demand simply by building at the next interchange.
“You can’t do that in New York,” he said.
Still, one trend that has helped paralyze the hotel-room supply and hike room rates — upscale hotels such as the Plaza being converted into condominiums — appears to be reversing.
The Chetrit Group announced this month that it would halt its planned conversion of the Empire Hotel across from Lincoln Center into 125 luxury condos and instead begin constructing a 440-room hotel.
More hotels should be built in the city to accommodate the need, the president of the civic group Partnership for New York City, Kathryn Wylde, said.
A senior vice president of PKF, John Fox, predicts 4,000 hotel rooms will be added to the five boroughs, 3,000 in Manhattan, in 2007.
If prices continue to climb, as industry observers predict, New York City would still attract tourists from around the world. Even if some Americans abandon the city as too costly, it’s a relative bargain compared to other world capitals like London and Paris, they say.
“There are a lot of the places in the world where hotel rooms are more expensive,” Mr. Zagat, who once headed the city’s official tourism arm, said.