Brooklyn Hotels Growing But Demand Declining

(Bloomberg) — About half a mile northwest of Brooklyn’s Barclays Center, a 202-room EVEN hotel is rising next to a Holiday Inn that opens in October. Two blocks over, a tower for Marriott International Inc.’s Autograph Collection is under way.

And that’s just downtown. At least 32 hotel properties are planned or under construction in Brooklyn, a record for the area, raising concern that the New York borough won’t have enough demand to fill rooms as supply in Manhattan also surges.

Developers seeking to capitalize on Brooklyn’s rising cachet as a trendy destination are facing declining occupancies and depressed rates as projects open in the next few years, according to David Loeb, an analyst with Robert W. Baird & Co. With new supply also tamping down room costs in Manhattan — home to more tourist sites and offices — visitors may have little incentive to stay across the East River.

“If you are a stand-alone, unaffiliated hotel, I am doubtful of your success,” said Bruce Ford, senior vice president and director of global business development at research firm Lodging Econometrics. “It’s important to not confuse Brooklyn with Times Square.”

About 95 hotel properties are in the works in Manhattan, data from Lodging Econometrics show.

New York’s hotel-room count has already increased 21 percent in the past five years, according to STR Inc. In May, the city and Houston were the only two markets among the country’s 25 biggest that showed a decline in revenue per available room, an industry measure of occupancies and rates.

Falling Rates

The average occupancy rate in Brooklyn fell 1 percentage point in the first five months of this year to 76.8 percent, while average room rates slipped 2.9 percent to $155.71, according to STR. In Manhattan, occupancies dropped 1.4 points to 82.4 percent and rates declined 3.3 percent to $255.60.

While Brooklyn’s status as a cheaper alternative to Manhattan may appeal to some domestic visitors, it probably isn’t enough to attract most corporate travelers or tourists from overseas drawn by the lure of Manhattan, said Ford.

“It’s a different kind of guest that comes to Brooklyn, it’s a different kind of product with a more local feel,” Ford said. “A visitor from Hong Kong or Rome will probably not come to stay at a hotel in Brooklyn unless they have relatives that live there.”

Brooklyn has drawn investors including Barry Sternlicht, who is building 1 Hotel Brooklyn Bridge, a combined luxury-hotel and condominium project on the waterfront. Barone Management LLC is developing the EVEN hotel, a brand owned by InterContinental Hotels Group Plc, near the 3-year-old Barclays Center arena. Second Development Services Inc. is constructing the high-end hotel nearby for Marriott’s Autograph Collection, a group of independently run boutique properties.

Williamsburg, Bushwick

The borough’s new hotels stretch from the Williamsburg waterfront to the BKLYN House Hotel at the northwestern edge of Bushwick, a rapidly gentrifying area about a 40-minute subway ride from lower Manhattan.

Richard Born and Ira Drukier, the Queens-raised billionaire partners that own Manhattan boutique hotels including the Bowery and the Ludlow, are planning a 250-room Pod hotel in Williamsburg. Rooms will cost about $150 a night.

Born said the sudden crush of hotels in Brooklyn is “crazy” and “a bit scary.”

“So why am I doing it? Because we offer the equivalent of a midscale brand and are a good alternative for somebody who wants to stay in Brooklyn and save money but doesn’t want to be staying in a Hilton Garden Inn,” he said.

Broader Growth

IHG, which also owns the Holiday Inn brand, is counting on Brooklyn’s broader growth and easy access to Manhattan for the success of the company’s two hotels in the borough, Joel Eisemann, chief development officer for the Americas, said in an e-mailed statement. Gregory Atkins, director of project management at Second Development, said the Autograph Collection tower is unique because it’s the only full-service luxury project he knew of in the downtown Brooklyn area.

For now, a lack of offices relative to Manhattan may undercut Brooklyn’s ability to come into its own as a hotel market, said Baird’s Loeb. Business travel helps room bookings on weekdays, when leisure visits tend to decline.

“Brooklyn has a lot going on, but if it wants to be more than a market where people stay when they can’t stay in Manhattan, it needs things that bring people to Brooklyn five, or better still, seven nights a week, and businesses, typically in office buildings, do that,” he said.

Not Buying

Hersha Hospitality Trust, which owns 17 properties in New York, including the NU Hotel near downtown Brooklyn, isn’t looking for more new properties in the borough because of the slew of construction and the lack of diversified demand, according to Neil Shah, president of the Harrisburg, Pennsylvania-based real estate investment trust.

“It’s a very compelling place, but it’s concerning how much new supply is talked about,” said Shah, who expressed skepticism that some of the projects will even be built.

Airbnb Inc., the San Francisco-based site for people to list accommodations, can also cut into hotel demand for Brooklyn, where a large number of visitors are looking for a local experience at a bargain, Shah said.

A project’s success will depend on its location in the borough, said Justin Palmer, chief executive officer at New York-based Synapse Development Group. The company is planning a project in Williamsburg that will include condos, food-and-drink venues and a 112-room Yotel hotel.

“The Williamsburg market has become a neighborhood in its own right,” Palmer said. “If we were talking about a Yotel in Bushwick right now, I think the story would be much different. Location matters, in Brooklyn maybe even more so.”