Upscale Hotels Report Strong Demand In Most Of Europe

Buyers are scrambling to find fresh cost-containment strategies for upmarket hotels in Europe, where the market has climbed sharply during 2005. "We have seen increases over last year," confirmed Neil Hammond, global travel manager for Schlumberger. "The hotels have gained leverage and are using it." Options for fighting back include trading down, consolidation and picking off vulnerable hotels, but by and large buyers are accepting that this year they will have to take increases on the chin for the first time since the global economic downturn of 2001.

Hotel companies confirmed Hammond's verdict that prices are strengthening. "The market is pretty strong at the moment," said Paul Wardlow, Europe, Africa and Middle East director of global transient and corporate sales for Starwood Hotels & Resorts. "We have been aggressive on rates in the United States over the last 12 months and we have seen that reflected over here as well."

As always, however, Europe should not be treated as a single entity. There are significant variations by region and even by city. Wardlow reports Amsterdam, Frankfurt, London, Munich and Paris as registering midweek occupancy above 90 percent.

In Eastern Europe, by contrast, over-hasty growth in supply means occupancy is languishing in the forties at several destinations. Each city is subject to unique market conditions. Rates are softer in Barcelona, for instance, where upscale stock rocketed 20 percent in 2004 and more rooms have been added this year. Meanwhile, there have been almost no new upscale rooms in Brussels but demand has accelerated as 10 more countries have joined the Brussels-headquartered European Union.

Following the terrorist attacks of July 7, hotels in London are waiting to see whether heightened security concerns will damage rates that are up by as much as 10 percent from 2004. Wardlow said that is unlikely, given the experience of the Madrid bombings in March 2004. "Madrid picked up pretty quickly afterwards and I think London will as well," he said, speaking the day after the British capital was bombed. "We are not seeing any cancellations coming through."

Looking across the European market, Wardlow has found clients attempting to negotiate hard in response to the shift towards a seller's market. He has seen greater evidence of clients systematically benchmarking Starwood properties against their respective competitive sets to ensure they are getting a decent deal. However, they are discovering that the rate rises are near-universal in cities where business is good. As a result, clients either are accepting the rises or trading down slightly in quality and price.

Anna Hedges, account director for corporate sales, for Como Hotels and Resorts, which includes the Metropolitan Hotel in London in its portfolio, also has seen corporate clients trade down as some tighten their pursestrings even further. "We are certainly looking for an increase after holding rates. We have been through a refurbishment, so we think we deserve it now," she said, "but we have clients who are still cost-cutting. Some of the big investment banks have started to look at four-star hotels instead of five-star ones."

Another option open to buyers is to consolidate to fewer properties. Starwood's Wardlow said he still is not seeing as much evidence of this as he would like, with buyers failing to crack down on policy-dodgers even if they have officially reduced their number of suppliers. "Travel managers are saying they will put a program in place, but are still not using the 'M' word [mandate]," Wardlow said.

The hardening of rates among upscale hotels also is prompting buyers to consider which properties may be more amenable to tough negotiation than their immediate neighbors. One example is new hotels (see sidebar). Another example is hotels that are beginning to look a little tired. "If a hotel needs a renovation, then it is easier to negotiate with them," said the European travel manager of a bank, who requested anonymity.

Yet, no matter to which stratagems they resort, buyers will find it hard to win concessions from the very best hotels in Europe, which are expressing bullish confidence they can keep price high on account of their quality. Wardlow confirmed that corporate travel business is declining in favor of leisure visitors in the guest mix at Starwood's most elite properties.

The international sales director of a smaller hotel chain told Business Travel News she actively is discouraging request for proposals-led corporate negotiations in favor of better yield from other sources. Similarly, she is eschewing larger travel management companies in favor of niche agencies that specialize in board-level customers. "This is probably the first time in three years we have seen a chance to move on rate," said the director, requesting anonymity. "If we are trying to hit a certain rate level and a company's rate cap is below that, then we are prepared to walk away from them. We are trying to position ourselves as the best hotel in each city and there are people prepared to pay that if they have the flexibility to go outside policy."