Hotel Execs: Rate Hikes To Continue Through 2016 - Business Travel News

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Hotel Execs: Rate Hikes To Continue Through 2016

January 30, 2013 - 10:30 AM ET

By Michael B. Baker

Los Angeles - Hotel rates should continue to increase during the next four years, primarily as a means to keep pace with rising costs, according to lodging executives speaking here last week at the Americas Lodging Investment Summit.

"Everybody I've spoken to thinks there's this gradual, ascending marketplace," Mark Laport, president and CEO of Concord Hospitality Enterprise, told BTN. "We're looking at 1 percent growth in supply [this year], which is still on the low side, and demand is increasing. This is not slam-dunk, killer business, but most of us think we're in for decent times in 2013, 2014, 2015 and even 2016." Concord manages more than 90 hotels, largely select-service and upper upscale properties, across the United States and Canada.

Speaking during an ALIS roundtable, Choice Hotels International president and CEO Stephen Joyce offered a similar sentiment. "Barring something unforeseen, we're showing a good year—nothing spectacular, but another strong year," he said.

Analysts' data presented at the conference backed up those projections. U.S. hotel demand in December reached 91.7 million nights, a record for any month, according to STR chairman and co-founder Randy Smith. Demand growth has been fairly solid across hotel tiers, and rate growth began to outpace occupancy growth about six months ago, he said.

PKF Consulting executive vice president Mark Woodworth said average daily rate growth would be twice the long-term average "as far out as we can see. Not until 2017 can we see a point where the current cycle peaks."

On a market-level basis, rate trends will be more mixed, according to Noble Investment Group CEO Mitesh Shah. Dallas, for example, did not grow as expected in 2012, he said.

Overall, given recent rate increases, hoteliers said they now are nearing price levels that peaked before the recession.

"Part of the reason it's getting a little bit better is that it was so bad before," said Gerald Chase, president and COO of New Castle Hotels & Resorts. "Just this year we'll break the ADR from 2007, and we've been having cost escalation."

Some of the cost pressure is coming from regulation, including a 2010 U.S. Department of Justice ruling, for example, that requires hotels to provide access to their swimming pools for people with disabilities. Distribution costs also are a concern, not just due to existing online travel agencies but also the unknown impact of future new entrants.

"There's lots of nontraditional competition that's going to come to bear over the next couple of years: Apple, Google, Microsoft or whoever," said Joyce, adding that distribution has been Choice's biggest focus during the past three years. "What I fear most is being unprepared and getting caught by surprise."

Besides trying to push rates higher, Noble's Shah said hoteliers would be reviewing services and amenities carefully to maximize profitability.

"Brands need to have a chief cost containment officer," he said. "Do we need these concierge lines? Who uses them? Who's using the indoor pools? There are a lot of important decisions we have to make, and we can't keep adding costs to our business."

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