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NEW YORK CITY-The Manhattan lodging market is a frequent topic of conversation. Concerns are continually expressed about the increasing supply dynamics on the island, but two fundamental factors are often overlooked.

In addition, reviewing the standard supply and demand trends, the rapidly expanding office market and the industry’s ability to adjust rates on a daily basis, allow it to capitalize on a rapidly rebounding market. The long-term prospects for occupancy and average-rate growth are strong. 

Through the last cycle, few mention Manhattan’s decline in guestroom inventory.  Several full-service and luxury hotels were converted to other uses. Room inventory in Manhattan in 2007 was at the same level as 2003. 2003 demand was 18 million roomnights and more than 20.5 million in 2007. Demand trends have yet to decline since the recession began. The softness in Average Daily Rate (ADR) occurred for two reasons, new hotels opening/stabilizing in a historically undersupplied segment (limited and focused service hotels) and concerns about the ability to raise rates through the recession, which are subsiding.  

Underscoring Manhattan’s strength is over 4.7 million more roomnights demanded in 2012 versus 2009, outpacing the market’s supply growth. The trend continues, with Q1 roomnight demand up 6.2%, supply additions of 1.7%, and rate growth of 5.5%.

Typically not discussed are the dramatic increases in state-of-the-art office stock in Manhattan, which will continue to strengthen demand. Manhattan’s office-to-guestroom ratio is among the lowest of leading US cities. Office stock delivery in Lower Manhattan, Midtown West, and Hudson Yards bodes well for demand. Nearly 22 million square feet of Class A office space in midtown alone will accelerate the demand dynamic, strengthening Manhattan’s lodging fundamentals, inducing additional weekday demand, and enabling hoteliers to implement long-term rate growth strategies.

Owens is a managing director at Ackman-Ziff.