Oct. 2 (Bloomberg) -- Starwood Hotels & Resorts Worldwide Inc. Chief Executive Officer Frits van Paasschen said increased demand for hotel rooms in New York City may signal the U.S. is beginning to emerge from the recession.

“New York is a good leading indicator because it’s such a crossroad of so many places,” Van Paasschen said in an interview in New York yesterday. “It’s a function of business activity, the fact that New York is also always a destination and, as the euro strengthens, some business that comes from the other side of the Atlantic as well.”

New York’s hotel occupancy rate was the highest in the year through August among the top 25 U.S. markets, according to Smith Travel Research, an independent lodging analysis firm in Nashville, Tennessee. While travelers are returning, occupancy was lower than the same period a year earlier. U.S. leisure travel improved in August at Starwood hotels yet business travel remained sparse, said Van Paasschen.

“Occupancy is starting to come back, yes, at low rates, but if this recovery looks like a normal recovery we would see in a couple of quarters rates come back as well,” said Van Paasschen, 48. “I am just not sure if this is a normal recovery.”

Fashion Week

New York hotels got a boost last month from Labor Day weekend travelers, Fashion Week, when designers present new collections during numerous fashion shows, and the U.S. Open tennis tournament, as well as the meeting of the United Nations General Assembly.

Occupancy in New York year-to-date through August fell to 75 percent from 83 percent, Smith Travel said.

Starwood fell 88 cents, or 2.9 percent, to $29.90 at 10:29 a.m. in New York composite trading. The stock has gained 66 percent this year, raising the company’s market value to $5.6 billion.

Van Paasschen said Starwood is looking beyond the U.S. for growth. Almost 70 percent of Starwood’s planned hotels are outside the U.S. The company is about to open its 50th hotel in China and expects the country to become its second-largest market in the next two to three years, he said.

Demand at Starwood’s luxury hotels abroad, including the St. Regis, has also picked up in China, Africa and the Middle East, excluding Dubai, Van Paasschen said.

Chinese Revival

“If you go outside of the U.S., markets like China have come back faster than you might have thought a few months ago,” said Van Paasschen. “Some markets in the Middle East and Africa are doing better. What is driving that is that by and large, commodity-driven economies are enjoying better prices.”

Starwood, the third-largest U.S. lodging company, manages and franchises about 960 hotels in 97 countries, of which it owns about 60. The company wants to be “asset light,” Van Paasschen said. “Our strategy is to be less exposed to real estate over time.”

Van Paasschen, who said on September 2008 that he “would have liked to have sold more hotels by now,” said yesterday he can afford to wait until a recovery in the financial markets would enable him to sell for higher prices.

“Because only very few hotels are being bought or sold right now, we would wait until an appropriate time to continue that strategy,” Van Paasschen said. “We have an enormous amount of assets we can sell at the right time for a great price to generate cash.”

The company is also “dialing down” its vacation-ownership business, he said.

Expense Reductions

Van Paasschen has been CEO of the White Plains, New York- based company since September 2007 after two years as head of the Coors unit at Molson Coors Brewing Co. He was previously corporate vice president and general manager for Europe, the Middle East and Africa for Nike Inc.

Starwood, like competitors such as Marriott International Inc., has been cutting expenses to counter a drop in bookings. An industry rebound will be slower than after past recessions, Van Paasschen said in July. Starwood doesn’t plan further “significant” cuts, Van Paasschen said yesterday.

The company has reduced its corporate workforce by 30 percent, and as much as 50 percent in the vacation ownership business.

“There isn’t going to be another cost cut like that in a normal scenario to drive earnings,” Van Paasschen said.

The U.S. economy has lost about 6.9 million jobs since the recession started in December 2007. Gross domestic product contracted at a 1 percent annual rate in the second quarter, the fourth consecutive drop.

In July, Starwood cut its earnings forecast for 2009 to 65 cents a share before one-time items, less than an earlier estimate of $1.10. Third-quarter earnings before one-time gains and losses are likely to be 6 cents to 10 cents a share. The company will report third quarter results on Oct. 22.

To contact the reporters on this story: Nadja Brandt in Los Angeles at nbrandt@bloomberg.net.

Last Updated: October 2, 2009 10:35 EDT