Hotel cornucopia: build ’em and they’ll come

For London and New York putting heads in beds seems to be a worry of the distant past, at least for now. The Financial Times has a somewhat impishly headlined report  "Chic-by-jowl on London's hotel scene" with detials on a slew of new hotels there. The ├╝ber upmarket Knightsbridge area is to soon to sport a super lux Bulgari hotel and residences thanks to a joint venture between Bulgari and Marriott. The new 85-bedroom hotel will include seven suites and feature a private cinema besides the obligatory spa and fitness center among other "essentials".  Another, the soon to open Belgraves, aspires to sport "famous faces" within its portals. It's unclear if they will swing open as readily for the hoi-polloi for whom the just opened, if oddly named, Z hotel in Soho offers "short-stay accommodation at an affordable price" with  "Bespoke handcrafted beds, i-docking stations and free wifi thrown in.

The Big Apple may have a relatively smaller geographic footprint than London but far outdoes London for building exuberance. Bloomberg news recently reported that building hotels in "New York City is becoming more affordable than buying as demand from publicly traded investors helps drive a surge in property prices". The report notes that "increased competition for purchases has led developers to plan the opening of (an astonishing) 50 new hotels" between now and 2013. A total that is "more than triple the number in Washington DC, the next-busiest U.S. city for construction with another sixty-eight set for completion in 2014 and after."  Most developers, of course, pay litle heed to rising operating costs such as real estate taxes which have risen more than 50% in less than 5 years while rates are still far from the peak of 2007-08. Developers tend to operate on a different time frame to long term owner-operators. Besides. little is added by way of meaningful perspective to the development horizon when analysts, based on data from one week when occupancy in the New York City exceeded 90%, suggest that the city is under-supplied.

Consumer demand for hotel rooms is fairly elastic. It won't take much to rain on the hotel building parade in London and New York when any one of a range of complementary factors such as air fares to the Big Apple or to London sees an upward spike. Coupled with the distinct possibility of a shrinkage of discretionary income in the primary overseas markets (Europe) it could have negative implications for the US resulting in a surfeit of rooms in both cities. That would be a great market, as in '09, for the remaining traveling customers but more than likely will result in a fresh round of hotel bankruptcies for owner/developers.

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Vijay Dandapani

Co-founder and president of a New York based hotel company for 24 years. Grew the firm to five hotels in Manhattan and also developed a greenfield project at MacArthur airport, New York. Speaker at numerous prestigious forums including Economy Hotels World Asia, Lodging Conference, NYU, Columbia University Real Estate Roundtable, Baruch College's Zicklin School and ALIS. President and ceo of New York City Hotel Association since January 2017.