Holiday spending a hot commodity: tourists keep New York stores in tip-top shape

Real Estate Weekly, April 2, 2008 by Jason Turcotte

So what happens to summer vacation plans in the face of an impending recession, astronomical air costs and a weak currency?

American vacationers spend in their own backyard and foreign travelers eye the United States as not only a hotspot but a bargain.

And while consumer spending may take a hit overall, trends in tourism may offset much of that loss, as New York retailers look to capitalize on the city's influx of visitors.

"The international component dropped after 9/11, but since 2003 has increased from 4.8 million visitors to 7.3 million in 2006," said Deborah Jackson, executive managing director at Weiser Realty Advisors. "With the dollar advantage for such travelers, I don't see this changing in the near future."

While retailers in U.S. cities that rely on domestic travelers could be hurt by this summer's soaring gas and air travel costs, cosmopolitan places like Los Angeles, San Francisco and New York should continue to thrive for two reasons: the cost benefits for international travelers and the fact that tourism experts predict more Americans will nix vacation plans abroad, replacing those trips with domestic destinations.

"In regard to domestic travelers, I too, see many opting for visits to New York City verses foreign travel, which should further benefit retail sales and hotel occupancy in the city," Jackson said.

While the country's housing squeeze began spurring economic downturns in other sectors late last year, all evidence seems to show a steady flow of tourists touching down on New York, resulting in a stable retail market.

According to the New York City Economic Development Corporation, the city's hotel occupancy rate in January 2008 climbed to 75.9%, nearly a 1% increase from January 2007. Also that same month, the $262 average nightly hotel room rate was a 10% increase from one year ago, showing signs of continued demand for New York hospitality. And the EDC's latest report shows employment growth for the accommodation and food sector as well.

Additionally, the department's economic snapshot shows that the 8.8 million people who flew in or out of NYC airports last December was on par with the previous year. And after a brief hiatus during the stagehands strike, Broadway box office figures have bounced back--and are better than ever. Broadway's 1.1 million attendance in the five weeks leading up to March 2 marked a 2.3% increase from the same time last year. And overall revenue is up slightly from this time last year.

However, even the New York retail market may not be immune to the side effects of a downturn. Budget stores, wholesalers and Wal-Marts typically thrive during hard economic times. And New York's international draw propels demand for high-end retailer goods, so experts say the mid-level shops are most vulnerable.

David Jacobstein, senior advisor at Deloitte Real Estate, suggests that downtown Manhattan retail remains strongly tied to Wall Street today. He says that with increasing financial service sector layoffs, restaurants, office supply stores and delivery retailers that service the city's financial heart could feel the heat.

But retail fundamentals are strong. And New York isn't facing the oversupply that plagued the early 1990s. While stricter lending standards have sidelined many developers (often requiring preleasing for projects), Jacobstein said the current market could provide a "feeding frenzy" for retail developers with abundant capital. And Jackson says European retailers are just as eager than ever to establish their brands in the Manhattan market.

And, like Jackson, Jacobstein sees a business-as-usual summer for the retail sector, with more domestic tourists considering New York over cities overseas, and more foreign travelers taking advantage of the budget-friendly dollar.

"The job losses have caused a decrease in purchasing power," Jacobstein said. "But that is offset somewhat by the weak dollar."