Manhattan's hotel market is number one in the nation.

HVS Hospitality Services, a global hospitality consulting firm, in conjunction with New York University's Preston Robert Tisch Center for Hospitality, Tourism, and Sports Management, recently completed the 2007 Manhattan Hotel Market Overview.

A slight uptick in Manhattan's occupancy level in 2006 led to a record high of 85.0%. Despite a virtually stable occupancy, the Manhattan lodging market registered a 13.4% increase in RevPAR compared to 2005, continuing its impressive performance.

The market's RevPAR gain was supported by double-digit growth in average rate each month of the year, with the exception of December, causing year-end 2006 average rate to exceed the 2005 level by 13.2%. The high rates registered by the Manhattan lodging market were caused primarily by continued strong demand levels in 2006, allowing hotel operators to be more selective with lower-rated demand and increasingly boost rates, thereby accommodating greater numbers of higher-rated travelers.

We note that the market's overall occupancy level of 85.0% in 2006 highlights the underlying strength of the Manhattan market, which continued to operate at near-maximum-capacity levels.

Because of a further decline in supply in 2006, the market continued to experience many sell-out nights, causing a significant amount of demand to remain unaccommodated.

Given the number of new lodging facilities proposed for Manhattan, a substantial portion of previously unaccommodated demand is expected to be accommodated in the future. Manhattan's occupancy and average rate both achieved new record levels in 2006, and we expect the positive trend to continue in 2007.

Nine hotels opened in 2006, adding 1,008 units to the market, compared to 758 new rooms in 2005. Of the nine hotels, five are mid-scale or economy products, and the remaining four are boutique lodging facilities.

The properties are spread all over Manhattan; however, five of the hotels are located in Chelsea, Times Square, or on Fifth Avenue in Midtown West.

Most of the new supply in Manhattan since 2000 has been in the form of boutique properties. Overall, boutique lodging facilities represent 26 of the 55 hotels, or 32% of the guestrooms that entered the market or reopened in Manhattan between 2000 and 2006. New boutique hotels range from mid-scale to luxury in terms of facilities, amenities, and service.

It is noteworthy that none of the boutique hotels opened or reopened in Downtown Manhattan or the Financial District.

It is important to mention that even though the Manhattan lodging inventory declined in 2004, 2005, and 2006, supply is expected to grow significantly in the future. As many as 8,707 rooms, or 47 properties, may enter the Manhattan market from 2007 through 2009. These proposed rooms represent roundly 13.8% of the 2006 inventory. We note that this new supply does not include confidential projects or hotels that are in the initial phase of development; if these projects are included, supply growth over the next three to four years could be close to 20%.

Of the anticipated new projects, 45% represent limited-service hotels, while 28% can be classified as boutique hotels. Only two new lodging facilities have been proposed for the luxury segment apart from the reopening of the significantly smaller Plaza hotel and the Mark hotel.

Significant barriers to entry, including high construction costs, prohibitive land costs, and a lack of available sites, continue to remain key factors when considering construction of lodging facilities in Manhattan.

"HVS Hospitality Services is pleased to report that New York City can once again boast of its status as the Number One U.S. market in terms of RevPAR in 2006," states Steve Rushmore, president and founder. "Considering the current climate, including the largest-ever hotel construction pipeline in Manhattan, HVS forecasts a soft landing for the Manhattan market, with minor declines in occupancy and softer average rate growth in the near term.

"Manhattan hotel values set a new record in 2006, exceeding the $1 million mark per key. Istithmar purchased the W Union Square for roundly $1.1 million per room in October 2006, and acquired an interest in the Mandarin Oriental for roundly $1.4 million per key in February 2007.

In 2006, values increased from 20% to 30% compared to 2005 levels. Overall, we anticipate Manhattan hotel values to level off by the end of 2007."

"To paraphrase a famous song--New York, New York is a heck of a hotel town," adds Lalia Rach, Ed.D., Associate Dean and HVS Chair at the Preston Robert Tisch Center for Hospitality, Tourism, and Sports Management at New York University.

"The expansion of brands, the development of new concepts, and the refurbishment of notable landmarks define 2006 as a stellar year. With every area of Manhattan experiencing record returns, the hotel industry continues to benefit from being the place to be, to see, and to conduct business."

Also included in the overview are the aggregate operating results of four distinct hotel segments and four neighborhoods. All segments registered a decline in room supply in 2006, with the exception of the limited-service segment, which recorded supply growth of 6.6%. Supported by a strong Manhattan market, all segments-boutique, limited service, full service, and luxury--registered double-digit average rate increases in 2006. Only one segment, luxury hotels, did not achieve RevPAR growth of over 10%.

Downtown hotels registered the highest average rate and RevPAR growth in 2006, followed by Midtown East. Midtown West and Downtown were the only areas in Manhattan that registered an increase in supply, causing Midtown West's occupancy to decline slightly. Downtown, however, together with Midtown East, managed to register an increase in occupancy in 2006.