North Star property company gained planning permission in 2020 to create a 62-bed aparthotel at 105-111 Micklegate.
Supercity, which specialises in aparthotels and has properties in London, Manchester and Brighton, will operate the new hotel.
Current Supercity aparthotels offer high speed wifi, bluetooth sound systems and Nespresso coffee machines. The new hotel in York will also have a restaurant and bar on the ground floor.
A spokesman for North Star said: “The new hotel will be a great addition to this magnificent street, and we are pleased to have successfully completed the demolition stage of the project.”
The site is next to the Grade I listed city walls and Micklegate Bar, Dewsbury Court and The Priory Pub.
The design of the building, by Vincent and Brown, will reflect the history of its location, influenced by the medieval timber framed buildings that once lined the street.
The hotel is expected to be finished by 2023.