LONG ISLAND, NY—With their proximity to the Long Island Sound, the Great South Bay, the Peconic Bay, the Atlantic Ocean, the Hamptons and New York City, Suffolk and Nassau counties have been vacation hot spots for many Americans—East Coasters in particular—over the years, especially during the island’s warmer months, July and August. The Long Island hotel market this year has been strong, despite it being a seasonal market facing labor costs. Hospitality companies with properties on the island are confident in the market’s ability to grow, and plan to continue planting flags.
“The Long Island market continues to be a heavily seasonal market, with Q2 and Q3 significantly stronger than Q1 and Q4,” said Mark VanStekelenburg, managing director of CBRE’s hotel advisory group. “The primary driver is the significant additional leisure demand in the spring and summer. Following a challenging 2017, 2018 year to date has been robust, with all submarkets showing year-over-year growth.”
Long Island hotels are forecast to undergo a RevPAR increase of 5.6% by year-end 2018, which is 2.5% more than the national projection increase of 3.1%, according to the real estate research firm’s latest “Hotel Horizons” report. CBRE expects the hotel market on the island to increase in occupancy by 2.3% and grow in ADR by 3.2%.
“Following flat year-over-year RevPAR in 2017 as a result of declines in the first three quarters offset by a strong fourth quarter, Long Island in 2018 has returned to strong positive growth,” he said.
Paul Stern, partner at Waramaug Hospitality, a Boca Raton, FL-based investment group, suggested that Long Island’s dense population and high levels of business and leisure travel “create year-round room demand.”
“Over the years, the island has seen development of hotels under major brands—most ‘flags’ are now represented here,” he said.
Year-end supply in the market is expected to increase by 1.4%. CBRE is projecting demand on Long Island to increase by 3.7% in 2018.
“The high price of land and construction costs ensure that new development is difficult to accomplish, limiting new supply to the market,” said Leslie Ng, chief investment officer at Interstate Hotels & Resorts. “This is especially true in high-barrier-to-entry markets like the fashionable Hamptons.”
The top submarket on Long Island is Suffolk County. About 33% of the properties in the county are located in Montauk, NY. The remaining properties are spread throughout the county. The total room supply in Suffolk is 9,772 rooms.
The majority of properties in Suffolk are upper-priced properties (57.6%). Within this segment, there are 74 properties with a total of 5,627 rooms. In the county, there are 4,145 rooms in 70 lower-priced properties, which make up 42.4% of the submarket. Popular upper-priced brands in the county include Residence Inn, Hilton Garden Inn and Courtyard; top lower-priced brands in Suffolk include Clarion, Ramada and Extended Stay America.
The number-two submarket on Long Island is Nassau County. The total room supply in Nassau is 6,373 rooms.
The majority of properties in Nassau are upper-priced properties (50.2%). Within this category, there are 20 properties with a total of 3,198 rooms. There are 38 properties with 3,175 rooms in the lower-priced segment of Nassau’s submarket (49.8%). Popular upper-priced brands in Nassau include Marriott, Hilton Garden Inn and Homewood Suites; top lower-priced brands in the county include Holiday Inn, Best Western and Days Inn.
On Long Island, the upper-priced segment is leading the way in 2018 RevPAR growth. In this particular category, properties are forecast to attain a 2.5% gain in ADR and see a 3.3% increase in occupancy, resulting in a 5.9% RevPAR increase. Within Long Island’s hotel market, top upper-priced brands include Marriott, Hilton Garden Inn, Residence Inn, Courtyard and Hyatt Regency. There are five upper-priced properties with 763 rooms in the supply pipeline, according to CBRE, which pulled from STR’s Q2 2018 data.
Lower-priced hotels are projected to experience an ADR growth rate of 3.5%, along with a 1.3% gain in occupancy, resulting in a 4.8% RevPAR increase. Top lower-priced brands on the island include Clarion, Holiday Inn, Ramada, Best Western, and La Quinta Inns & Suites. As of Q2 2018, there’s one lower-priced property with 146 rooms in the pipeline.
On Long Island, one challenge for hoteliers is the continued pressure on wages. “With Nassau County and Suffolk County being among the highest demographic counties in all of America, the cost of labor is a challenging problem many hotels face,” said Ng. This obstacle for hoteliers in the market also puts pressure on property operating margins.
Recent openings on Long Island include Courtyard by Marriott Westbury Long Island, the Residence Inn Long Island East End and the expansion of the Hampton Inn & Suites Rockville Centre. Another property worth noting is Jake’s 58 Hotel & Casino. After acquiring Islandia Marriott Long Island in 2016, Delaware North rebranded the property the following year as Jake’s 58 Hotel & Casino. The Islandia, NY-based hotel and gaming venue has been opened ever since, and is Long Island’s only casino hotel.
A few properties in the construction pipeline include Residence Inn By Marriott Long Island Garden City, Homewood Suites by Hilton Ronkonkoma and Home2 Suites by Hilton Long Island/Brookhaven/Yaphank.
Waramaug’s executive is open to acquiring more properties on Long Island. “The island’s strong fundamentals and barriers to new development signal good conditions for acquisition of existing properties,” Stern said.
While Long Island has been known to benefit from its proximity to New York City, this strength could also negatively impact it.
“This also creates its primary weakness, in that this demand fluctuates dramatically over the year,” VanStekelenburg said. “Some of the Nassau County full-service hotel stock has also been challenged as of late with the continued opening of branded limited- and select-service hotels, especially within the transient segment.”
Interstate also has plans to acquire more properties in the market for its owners. “Our owners are always looking for hotels in the New York metropolitan area, especially in markets on Long Island,” Ng said. “The island’s proximity to NYC is particularly appealing to high-net-worth investors in New York.” These investors understand the “nuances of markets” and see the value in investing in these properties for the long term, he said.
In 2019, Long Island RevPAR isn’t expected to grow as much as it did in 2018. “Looking further ahead, as more of these pipeline projects open and supply growth ramps up, RevPAR is projected to grow 2.5% in 2019, with flat occupancy and 2.4% ADR growth,” VanStekelenburg said. The increase in RevPAR in the upper-priced segment is expected to be higher than in the lower-priced segment: 2.5% and 2.3%, respectively, next year.
“The market continues to achieve critical mass, with new product types and brands entering the market,” VanStekelenburg said. “The continued strengthening of the group and corporate travel markets are mitigating the impacts of the seasonal leisure market.” HB