Demand Drives Up Miami Rates, New Supply Eases Them

Miami hoteliers may gain a leg up in group travel and meetings negotiations as new demand reverberates through the industry. As occupancy rates soar to pre-Sept. 11, 2001, levels and room rates rise, buyers face new challenges, but a continuing inundation of new properties should test sellers, too.

According to Jan Freitag, director of independent industry analyst Smith Travel Research, Miami hotel occupancy through August stands at 70.6 percent for 2004, above the national 67 percent average and an 8.2 percent increase over the same eight-month period last year. Room rates also increased 8 percent over the same period, and climbed well above the national $86 average, to roughly $117, but Miami's growth in revenue per available room may be more telling, Freitag said. With RevPAR at $82.86, "Miami has outperformed 19 of the top 25 markets, excluding Las Vegas," he said.

Hotels are experiencing increased demand in both the business and leisure sectors, with growing segments such as small businesses and international travelers regaining prominence in the marketplace. "Our RevPAR has gone up more than 30 percent just last summer to this summer and occupancy has gone up by about 40 percent," said Hamid Abdulhafid, general manager of the independently operated Palms South Beach hotel.

These trends have reverberated through the local meetings marketplace. "The demand puts hotels in a position where they don't have to rely on discounting their business as much as some other destinations," said Debbie Castillo, director of marketing for the Loews Miami Beach Hotel. Still, Castillo said, corporate buyers remain tentative and rate increases have been gentle. "We've been able to make some marginal 3 percent to 4 percent increases. By no means are we able to negotiate 6 percent or 8 percent increases," she said.

The recent influx of new luxury hotel properties may be keeping the Miami marketplace in check and the negotiation climate cool. According to the Greater Miami Convention & Visitors Bureau, the market has expanded by more than 9,000 new hotel rooms since 1998, with nearly 1,500 opening in 2004.

"There's so much inventory available," said Rachelle Stone, vice president and partner of sales and marketing for Miami's Advantage Destination & Meeting Services Inc. "We have new hotels coming online every few months. There's a really strong market across the board for really heavy negotiation and competition. It's opening up a door for everybody to stick their knife in the meetings pie."

Miami's boutique hotels play a unique role in driving that competition, building and selling niche products with success, especially in the small meetings market. "We're not a big factory. We can tailor ourselves to our prime targets, smaller groups," said the Palms' Abdulhafid. "Many corporate groups have specific needs when it comes to contracting that you need to be flexible."

In that small meetings segment, said Susan Paul, regional director for site selection firm HelmsBriscoe, planners may be able to negotiate more freely and aggressively. "The independents—based on ownership—that's where we see whether they're willing to negotiate, if they're willing to give away the house. The chain hotels have so many opportunities that they're willing to hold up."

While Miami hoteliers have found creative ways of stepping up to new competition, corporate buyers and planners seem to be showing more flexibility by offering longer lead times for events, empowering themselves to negotiate alternate contracting options more aggressively. Many buyers now seek to pay lost profit instead of lost revenue. "Some hotels are open to it if they really want the business. Most of them are reasonable with it but they put a time frame on it. Shorter term, they're not going to want to put profit over revenue," said HelmsBriscoe's Paul.

Though some of these trends can be seen nationwide, Miami may be ahead of the curve. "Comparatively, we've seen a bit of an overall strengthening for us as compared with New Orleans and Atlanta, in their ability to recuperate economically, which have been slowed down," said Gary Grove, Southeast regional vice president of sales & marketing for Ritz-Carlton Hotel Co. "Miami is by far the strongest market of the three. For any product, the demand helps to set the tone for what happens from a negotiating standpoint in the marketplace."

Hoteliers anticipate this year's devastating hurricane season may cause a shift in negotiation tides. "I don't know the long-term impact of it, but my guess would be there's going to be sensitivity," Grove said, noting that leisure travel has been fairly quick to rebound but group planners still are hesitant. "We're going to have to have a good strategic plan to approach the market in the coming years."

"Because of demand in the marketplace, you now have the ability to choose groups that work well for your hotel," Grove said. "We've moved a little away from a buyer's market. It's flattened out a bit."