Overbuilding Fuels NYC's Problems

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It's no wonder New York City's hotel industry has such severe problems. Demand is down, occupancy is off and rates have plummeted; yet the market expects to absorb 11,618 additional rooms in the near future, probably this year. According to new data from Smith Travel Research, the 79 new hotels under construction in New York City amount to an astounding 13 percent of current supply. No market can absorb that kind of growth very quickly; it's almost impossible in the current recessionary market.

By contrast, the 3,854 rooms under construction in Houston account for just 5.6 percent of the city's current supply. Dallas is third with new builds representing 3.4 percent of the current supply. Also in the top five are metropolitan Washington, DC and Atlanta.

In 2009, New York saw demand decline by two percent, while RevPAR fell 28 percent. It will be a long, slow climb for the city's hotel industry to rebound to its heyday of the mid-1990s. In the meantime, a lot of properties will suffer and more than a few will become distressed, change hands or worse.

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