Only half of all hotel owners and general managers believe the New York hospitality industry will recover from Covid-19.
That's the conclusion of a report by the Hotel Association of New York City, based on a 47-question survey taken by 102 hotel owners and operators.
The report provided the first comprehensive, post-pandemic industry assessment, one that demonstrated consumer confidence is low, taxes are too high, occupancy is a fraction of what it was pre-pandemic, and the lack of cash-flow presents a potentially fatal problem to the industry.
“Fundamentally, we believe the New York City hospitality industry requires a lifeline at this present moment,” the report said. “As of late September 2020, [the association] reported that approximately 200 hotels in the city had closed either temporarily or permanently.”
There are more than 700 hotels in New York, with two-thirds of them in Manhattan.
The survey gives the clearest snapshot yet of the impact of the Covid-19 pandemic on one of New York’s preeminent industries. Last year the city held 124,000 rooms in inventory across the five boroughs. These rooms attracted more than 28 million hotel guests and generated $71 billion worth of economic activity, including $7 billion in state taxes, of which $4.9 billion went directly to the city.
The second quarter of this year saw a 58.5% decline in occupancy versus the same quarter in 2019, according to the hotel association survey, and the average revenue per available room dropped nearly 82% in that same time frame.
The association estimated that as many as 20% of all city hotel rooms will not reopen again, mainly because of the wave of closings. Low occupancy is the main driver of the closings. Before the pandemic, New York's occupancy rate stood at 87.5%, the highest in the nation. The average percentage occupancy of the hotels surveyed stood between 20% and 25% from May through September, a drastic drop from the previous year.
A lack of cash flow stemming from low occupancy is the No. 1 problem for hotels right now, according to the survey; 81% of all hotel owners and general managers surveyed said cash flow was their biggest challenge. That was followed by consumer confidence (41%) and implementing new health and safety regulations (37%).
The job losses across the industry are nothing short of staggering. On March 1, two weeks before the pandemic shut down economic activity across the city, the 102 hotel owners surveyed listed 18,840 full-time employees. By September these same owners listed 3,329 full-time employees, an 82% drop.
“Many responsibilities of hotel operations are specialized and discrete, and cannot be redistributed to fewer employees, resulting in the decision to reduce keys in operation or to close certain properties altogether,” the report noted.
There are further complications outside of Covid-19 that are threatening the hospitality industry. An arbitrator ruled in September that New York City hotel owners must pay $500 million in severance pay to thousands of hotel workers displaced by the pandemic.
Then there is the issue of city property taxes. New York City’s property tax is a formula based on 2018 assessments such as net operating income and other fixed expenses. The year-and-a-half lag in assessing values further complicates the tax bill due this year, as the city is charging 18% interest on overdue tax payments.
“The city has given us no relief with property taxes. It’s the one tax the city controls in terms of tax rate and the collection,” said Vijay Dandapani, CEO of the Hotel Association of New York City. He noted there’s been no revenue for most of the year, and the tax bill is based on occupancy projections between 80% and 90%.
“While many paid the July 1 bill, many didn’t,” he added. “The next half is due Jan. 1, and you have all these headwinds without any business.”
Even though he recognizes the battered state of the industry, Dandapani is optimistic that the city’s industry will return to normal once the entire nation takes the first steps toward emerging from the coronavirus.
“We will recover,” Dandapani said, adding he thinks tourists will be the first group to flock back to the city. “People still want to come back to New York. The city is unique, and anyone who writes us off hasn’t learned New York City’s history.”
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