Migrant housing, tourist demand: Why hotel rooms in New York City are so expensive right now

NEW YORK – In late 2022, as thousands of migrants began to arrive in New York City (NYC), city officials scrambled to find places to house them. They quickly found takers – hotels that were struggling to recover from the Covid-19 pandemic-driven downturn in tourism.

Dozens of hotels, from once-grand facilities to more modest establishments, closed to tourists and began exclusively sheltering migrants, striking multimillion-dollar deals with the city. The humanitarian crisis became the hotel industry’s unexpected lifeline in NYC and the hotels became a safe haven for tens of thousands of asylum-seekers.

Two years in, as the city’s peak tourism season is about to begin, the migrant crisis has dramatically shifted the hotel landscape in NYC. The conversion of hotels to shelters has sharply decreased the supply of rooms just as tourist demand has risen, nearly to pre-pandemic levels, and is projected to match a record high.

The migrant shelters, along with other factors that include inflation, have propelled the nightly cost of an average room to record levels.

The average daily rate for a hotel stay in NYC increased to US$301.61 (S$405) in 2023, up 8.5 per cent from US$277.92 in 2022, according to CoStar, a provider of commercial real estate data and analysis.

During the first three months of 2024, when prices traditionally dip, the average stay was 6.7 per cent higher than during the same period last year: US$230.79 a night, up from US$216.38 in 2023.

About 135 of the city’s roughly 680 hotels entered the shelter programme, with many in midtown Manhattan, Long Island City in Queens and near Kennedy International Airport, all traditional magnets for tourists. Participating hotels are paid up to US$185 a night a room, according to the city. Not a single one has converted back into a traditional hotel.

The use of city hotels for migrants represents a loss of 16,532 hotel rooms, leaving 121,677 hotel rooms for travellers, according to CoStar data. That is 2,812 fewer hotel rooms than existed in the period just before the pandemic.

Mr Daniel Lesser, a co-founder of LW Hospitality Advisors, said: “It’s all supply and demand related – the migrant rooms have reduced the amount of supply.”

About 65,000 migrants are staying at hotels, tent dormitories and other shelters, in large part because of the city’s legal obligation to provide a bed to anyone who needs one. The city projects that it will spend US$10 billion over three fiscal years on the migrant crisis.

Beginning in late 2022, the city entered into a contract of up to US$980 million with a hotel trade group to pay hotels that decide to shelter migrants under its Sanctuary Hotel Programme.

City officials said the hotels receive between US$139 and US$185 a night a room, whether or not the room is occupied. Those rates do not include money the city is spending on food and other services for migrants. There have been reports of hotels being paid more than US$185 a night.

Many of the hotels-turned-shelters, some of which were deep in debt, facing foreclosure or had received poor reviews from guests, catered to budget and middle-class travellers. While many were independent hotels, about half of them carried brand names, including Courtyard, Holiday Inn Express, SpringHill Suites and Super 8.

As migrants are taking up the city’s more affordable hotel rooms, mid-market tourists are likely to see the steepest increase in prices, said hotel industry adviser Sean Hennessey and clinical associate professor at New York University.

“I believe it’s enabled two-, 2½-star hotels to be a little more emboldened, to take advantage of the situation and charge prices that perhaps they wouldn’t otherwise be able to,” he added.

Other factors have also contributed to higher room rates.

In September 2023, city officials began to enforce a new law meant to curb the proliferation of short-term rentals, such as those listed on Airbnb, which used to account for more than 10 per cent of all tourist accommodations in the city. The crackdown obliterated most short-term Airbnb listings, which some observers said might have had an even larger impact on hotel rates than the migrant crisis.

The number of Airbnb listings in NYC for short stays – under 30 days – plummeted by 83 per cent to 3,705 apartments in March, down from 22,247 listings in August 2023, the month before the law went into effect, according to AirDNA, an unaffiliated company that collects data from short-term rental listings. Most of the remaining Airbnb listings in the city, about 90 per cent, are available only for stays of over 30 days.

New construction may not ease the strain. While more than 8,000 hotel rooms are in the pipeline, significantly fewer are expected in the long run, according to developers. That is because of new zoning rules and special permits that have restricted hotel development, making it more expensive to build and operate hotels.

In October 2022, the Row NYC Hotel in Times Square, which opened as Hotel Lincoln in 1928 but was in financial straits during the pandemic, became the first and largest hotel converted into a shelter. It struck an initial US$40 million deal with the city to house thousands of migrants in its 1,331 rooms at US$190 a night. Rooms reportedly ranged from US$300 to US$500 the month before it opened as a shelter.

The Roosevelt on East 45th Street, named after former US president Theodore Roosevelt, also emerged as a symbol of the humanitarian crisis. The hotel closed in 2020 during the pandemic, but reopened in May 2023 after signing a contract with the city. Its once-grand lobby is now the main processing centre for migrants, with thousands living upstairs in its 1,025 rooms.

The hotels housing migrants are required to provide trash pickup daily, housekeeping every other day, and fresh towels and linens at least once a week, according to several hotel contracts.

“If the migrant situation gets better, we’ve made clear to hotels that are enrolling in the programme that you could potentially be out of the contract with a month’s notice,” said Mr Vijay Dandapani, president and chief executive of the hotel association.

He said the association was not profiting from the city contract, but rather, playing the role of negotiator between the city and hotels. He declined to say how much the city had paid hotels so far.

Hotels that decide to reopen to tourists will have to undertake expensive renovations to repair the wear and tear from operating as shelters. And some hotels have indicated they will shut down after their shelter contracts run out.

“Some of them will not come back into the hotel industry,” Mr Dandapani said. “Period.” NYTIMES