Supply Shortage Drives Up Hotel Rates In New York City

New York City’s hotel industry is grappling with a supply shortage, leading to a significant rise in room rates for tourists. According to a report by The New York Times, one in every five hotels in the city has been converted into shelters for illegal immigrants, reducing the number of available rooms for visitors.

As a result of this decreased supply, coupled with a resurgence in tourist demand nearing pre-pandemic levels, hotel prices have skyrocketed. The average cost of an overnight stay in New York City hit a record $301.61 in 2022, an 8.5% increase from the previous year. In the first quarter of 2024, rates were already up by 6.7% compared to the same period in 2023.

The Times cited an analysis by Costar that revealed a shortage of approximately 16,000 rooms previously available to tourists, offset by only 4,000 new rooms and another 8,000 under construction. This shortage is being acutely felt, particularly during peak travel periods, according to industry experts.

“During peak periods, try getting a hotel on a Tuesday, Wednesday or Thursday night in midtown Manhattan, and, if you can, you could end up paying dearly,” said Daniel H. Lesser, a co-founder of LW Hospitality Advisors.

The crisis has been exacerbated by a new law that has made most Airbnb and similar short-term accommodations unavailable, further reducing the supply of available rooms. The hotel industry lobbied heavily for this law, which has taken 83% of short-term Airbnb rentals off the market.

While Mayor Eric Adams acknowledged the surge in tourist demand, he did not address the issue of reduced supply. Critics argue that the combination of converting hotels into immigrant shelters and restricting short-term rentals has created an artificial shortage, driving up prices for visitors to the city.