When the ball drops at Times Square this New Year’s Eve, Hersha Hospitality will have reason to cheer for 2013, says hotel industry analyst.
Though investors remain cautious on the outlook for Manhattan RevPAR growth given fears over supply growth, Loeb writes that ‘concerns are overblown and RevPAR results are likely to be at least a market performer in 2013 (suggesting 5 percent-6 percent RevPAR growth).
Baird said its outlook for Manhattan (80 percent of total NYC rooms) is particularly bullish given the following:
· Occupancy levels in Manhattan are above peak 2007 levels and have stabilized in recent months, suggesting pricing power should accelerate in 2013. ‘The biggest hurdle toward aggressive rate growth remains tentative operator psychology, which we expect to improve as the timing of supply growth appears less lumpy than in 2009-2010.’
· 2013 and 2014 supply growth estimates manageable. ‘We estimate 2013 and 2014 supply growth in Manhattan to be 4.6 percent and 4 percent, respectively, which would pale in comparison to the cumulative 15 percent supply growth seen in 2009 and 2010. Recall, 1Q11 was a particularly difficult quarter for the Manhattan market given the concentration of supply growth in 4Q10; tough winter weather also amplified concerns that the 1Q11 weakness was supply-driven. Construction and inspection delays for new hotels in Manhattan are likely to push planned near-term opening dates out further than scheduled.
· Sell-out nights in Manhattan cloud depth of demand. Even as new supply hits the market in Manhattan, incremental demand from the outer boroughs, in particular, will ease the likelihood of steep occupancy deterioration and support pricing integrity.
· Limited-service momentum likely to continue. Manhattan limited-service product has outperformed its full-service counterparts in 25 of 33 quarters since the end of 2009, reflecting an ongoing shift of consumer preferences to stronger perceived value and a de-emphasis on the need for full-service amenities in Manhattan.
‘Our bullish outlook for Hersha continues to rest on this thesis; we expect its Manhattan portfolio (tracking toward 75% sell-out nights in 2012) to continue to outperform the market.’