International Hotel, Exchange Rates Are Rising

Many travel buyers will start crunching numbers for the 2008 hotel request-for-proposals season over the next few weeks, and what they are likely to find are some hard figures. Demand continues to outpace supply in cities worldwide, with the problem exacerbated outside the United States by the declining value of the dollar, now below the symbolic figure of £0.50.

Even without the currency depreciation, rates have grown by double-digit percentages in many cities in Europe, the Middle East and India this year, covering locations as diverse as London, Madrid, Dubai and New Delhi. "We have seen the same rate increases as last year in 2007, and 2008 is likely to be similar," said Maria Chevalier, vice president for global intelligence with the BCD Travel-owned consultancy Advito. "It is going to be another challenging year."

Paul Wardlow, director of global transient sales for Starwood Hotels & Resorts, offered a little more comfort than that, though not much. "Rate rises will not be as strong as in 2007, but certain markets continue to thrive," he said.

Another complicating factor for U.S. buyers, according to Chevalier, is that 60 percent of U.S. hotels now offer transparent, detailed folio data, but it is available from only a handful of hotels in the rest of the world.

Although conditions are tough, both Chevalier and Wardlow urged buyers not to despair, insisting there still is room to negotiate despite the shortage of bed capacity in so many locations. According to Wardlow, buyers can secure discounts as long as they do not attach too many conditions and deliver the commitments they promise. "Corporate clients are being a lot more realistic in what they are asking for," he said, citing room allocations, last-room availability and deals of two years or more as unrealistic.

"Travel managers are realizing that the days of things like allocations are gone and that hotels will be driving towards non-last-room availability. Last room availability is something we only want to give to clients who really need it and are really delivering business to us too. We are also following up a lot more strongly on nondelivery of commitments. Our corporate clients are saying that is what they want because it signals to them if there is leakage in their policy," Wardlow said.

For Chevalier, the key lesson in the present environment is that those who put the work in are the ones who will gain the rewards.

"Buyers have to be more aggressive," she said. "That means doing thorough analysis and going into negotiations very prepared. You never have to lie down and take it. You have to see what you can leverage from a chain, market and individual hotel perspective. Each has its opportunities, so a tight market like London could be about diversifying your portfolio. In other places, it could be about negotiating on more than the room rate or analyzing which tiers are doing particularly well. Even in a very tight market, you can get movement between the first round of negotiation and the last."

Demand in many cities has outpaced forecasts, including London, which has recorded double-digit year-on-year rate growth every month since May 2006, according to TRI Hospitality Consulting. It had expected London rates to rise 4.6 percent in 2007, but the average for the first five months of the year proved to be 12.8 percent higher than the same period in 2006.

U.S. visitors to London, deterred by the weakness of the dollar, are down 7 percent, but visitors from Europe, especially from the new EU member states, replaced them. TRI believes rate growth in 2008 will cool to a more modest 4.0 percent.

"We are seeing signs that the U.K. is either at or nearing the top of the cycle," said research manager Ben Walker. Elsewhere in the United Kingdom, TRI has forecast a rise of 2.9 percent this year and 2.5 percent in 2008.

Reports regarding Paris are mixed. Advito's Chevalier described the market as "strong," and it remains the second-most expensive city in HRG UK's list of average rates in Europe. However, rate growth so far this year has been a relatively modest 3.1 percent, according to TRI, and Starwood's Wardlow also said the city is cooling. "Paris is weakening a little," he said. "There's been a lot of development."

Amsterdam also has a mixed story. "It will flatten out this year after steady growth," said Wardlow, but TRI figures for the year to date put rate growth at 6 percent and Walker predicted it will continue to rise.

"Germany is bouncing back," said Wardlow. TRI figures show Berlin up 8.3 percent for the year to date and Munich up 18.8 percent. Wardlow said Frankfurt also is performing well, with demand outstripping supply there and in Munich, even when the cities are not hosting mega-trade fairs, which notoriously tie up room stock in German cities for one or even two weeks in a row.

The reason for the rate surge is a growth of 3.5 percent in German gross domestic product in the past year, with Wardlow noting a rise both in domestic travel and in the increasing popularity of Germany as a hub for European business meetings. However, said Walker, "the trend is very strong but city-specific. Hamburg is a good bet for a conference," on account of rates having risen only 1.8 percent this year.

Wardlow said Rome and Madrid are experiencing double-digit growth as well, with the closure of some Madrid hotels for refurbishment a likely reason there, and Helsinki is "commanding very high rates."

Prague is one of the few rays of light for buyers, with overcapacity forcing rates down 2.3 percent, according to TRI. Rates in Budapest also are depressed: Its average of $138 is the lowest of any European city tracked by TRI.

Moscow remains the city of hotel buyers' nightmares. Rates are more than 40 percent higher than Paris, and TRI put growth so far this year at 27.6 percent. "Eighteen hotels with an estimated 6,000 bedrooms are scheduled to open in the next three years, so rate growth is likely to slow, but not in the immediate future," according to TRI's Walker.

The Middle East average daily rate is up 10 percent to 13 percent, said Chevalier, with occupancy continuing to climb.

India's rates continue to soar. "India really struggles with issues of supply," said Chevalier. "The major hotel chains are all trying to keep up by building more properties but it is going to take years to level out. There is definitely going to be double-digit rate growth for another couple of years." Wardlow cited Delhi and Mumbai as cities with especially acute capacity issues, but noted rates have eased slightly in Bangalore—the epicenter of the Indian hotel shortage—with the opening of some new capacity.