BTN's 2009 Corporate Travel Index: Wall St. Crash Ameliorates Hotel Rate Growth - 2009-02-23

Despite being the epicenter of the financial services industry meltdown in 2008, New York remains the most challenging market in the United States for travel buyers looking to control costs.

New York was one of the few cities where buyers ended up negotiating hotel rates that were higher than expected for their 2009 programs, said Bob Brindley, vice president of the Americas for Advito, BCD Travel's consulting unit. Early estimates showed hotel rates for buyers increasing by an average of 6 percent for the city, but they ended up increasing closer to 6.5 percent.

"It's still obviously a large market with limited capacity growth," Brindley said. "Hotels still have pricing power, and that's why we're seeing increases in the 6.5 percent range."

While no other U.S. city comes close to New York in terms of price—this year's Corporate Travel Index shows more than a $100 differential between the per diems of New York and the second most expensive city, Washington, D.C.—buyers do have a few more reasons to hold back on the Bronx cheers when planning travel within the city this year.

For one, a 6.5 percent increase is steep, but not nearly as steep as the double-digit increases in past years. More importantly, buyers now are more likely to actually get the rates they've negotiated. During the seller's market years, last-room availability for many buyers was either impossible to negotiate at all or came at such a stiff premium that they did not pursue it. During 2009 negotiations, however, buyers said it increasingly was put back on the table.

Wall Street woes, of course, are playing a role. Prior to the autumn economic collapse, Manhattan hotels garnered about 20 percent of their revenues directly from Wall Street, according to PKF Consulting senior vice president John Fox.

Buyers who want to deal with upper upscale and luxury properties in Manhattan also are finding the hotels a bit more willing to budge than in the past. American Express Business Travel has reported such properties cutting rates by as much as $100 to $200 a night, and buyers have said that they've seen hotels expanding discounts beyond standard rooms in order to keep their business.

Even with rooms a bit easier to find in Manhattan, cost-conscious buyers still can look across the Hudson and East rivers for solutions. Downtown Brooklyn, New York's third-largest central business district, has seen a good deal of hotel capacity growth in recent years.

On the other side of Manhattan, Newark, N.J., in 2009 saw a sizable drop in negotiated rates compared with 2008, according to Corporate Travel Index data.

Even so, leaving Manhattan is not the solution for all buyers. Some surrounding suburban areas, such as White Plains, saw greater increases in hotel rates than even New York City. Additionally, making travelers stay too far away from where business is being conducted might be counterproductive, according to Brindley.

"You also have to look at the total cost of stay," Brindley said. "You don't want to stay in a suburban location if you're doing business downtown."

In most cities, airport-adjacent hotels have taken a harder hit in rates than those in locations closer to the city center, bringing down the city averages, according to Brindley, but that's not so in congested areas around LaGuardia Airport.

While further discounting could come as the economic slowdown potentially worsens throughout the year, a buyer's best bet for managing travel in New York is to rely on time-tested demand management practices.

"There are a lot more people trying to focus on that in very expensive markets. Doing a day trip if they can instead of a one-night trip or trying to cut a three-day trip into a two-day trip," Brindley said. "In addition to cutting, they might decide not to stay at a full-service property if they're only staying one night."