Corporate meeting buyers have begun to move some of their events out of major cities and to secondary markets as competition for space heats up and room rates rise, according to an exclusive Meetings Monitor survey. Buyers confirmed expectations of industry analysts and hoteliers that the meetings industry has shifted to a seller's market, at least in major cities, and that this year will see higher room rates and a return of ancillary fees and food and beverage minimums. Buyers are expected to feel the greatest effect on smaller meetings booked less than 90 days in advance.
More than 30 percent of 189 corporate meeting buyer respondents said they have paid higher hotel rates in the past six months for short-term meetings with fewer than 100 attendees compared with meetings with longer lead times. Buyers first reported higher room rates for small, short-term meetings in a March 2004 Meetings Monitor survey
(Meetings Today, March 29, 2004), as the strong buyer's market in place since 2001 started to weaken. The trend of higher short-term rates has continued this year, according to the survey, but buyers said higher rates have extended to ancillary fees and food and beverage minimums.
In response, buyers have moved some corporate meetings to smaller cities, as competition for space intensified from both transient and group business and room rates rose in major East Coast, West Coast and southern metropolises, according to hoteliers.
Average lead times for corporate meetings with less than 100 attendees continued to vary widely, according to the survey. However, the percentage of respondents who said they planned smaller meetings an average of one to two months in advance showed the biggest decline from last year—from 36 percent in March 2004 to 24 percent this year. The percentage of buyers who said they plan their smaller meetings six months to one year in advance showed the biggest gain: from 3 percent to 9 percent, year over year.
Hotel rates for short-term meeting business have continued to climb this year. According to the survey, 31 percent of buyers said the average rate for their meetings planned with fewer than 90 days of lead time was higher than the average rate for longer-term meetings. In the 2004 survey, 20 percent of buyers said short-term rates were higher than long-term averages. Just 10 percent said short-term rates were higher in 2003.
This year, only 13 percent of respondents said they could find a better deal on short-term meetings than on longer-term events. In addition, 56 percent of respondents said group hotel rates were "about the same" whether booking meetings months in advance or weeks.
Both buyers and hoteliers said pricing changes are market by market, with primary cities seeing the greatest jumps in rates and competition for space.
Hotels are, for the first time in five years, in a position both to demand higher corporate rates and to reduce availability of guaranteed room nights, according to JP Morgan Chase analyst Harry Curtis. April room rates are strong, Curtis said in a March 3 report, with over 20 percent rate increases year over year, in Atlanta, Los Angeles and New York and almost 20 percent in Chicago. JP Morgan attributed the strength to a recovery in meeting and convention demand.
"Negotiations are a little tougher because you're trying to find space and there are more people out there looking for space. I'm feeling more competitiveness out there," said Craig Ardis, director of special events for Ada, Mich.-based Amway Corp. Amway meetings budgets reflect an expectation that hotel rates this year will increase, he said.
"Lead volume is up about 20 percent this year just in the first two months and we're thrilled with that, with January and February tending to be your slower months. Definitely, we're seeing more leads come in 2005," said Diane Reardon, senior director for groups and regions with Carlson Hotels Worldwide's sales team. However, lead times for smaller meetings have not reflected greater competition for space as of yet, and vary widely, Reardon said. Some buyers are extending their planning process to a full year, while others negotiate for space with weeks to spare.
"We are seeing the full gamut of companies that are reactive versus the handful that are proactive and planning further out," Reardon said. "It goes by destination also. In our primary destinations we are seeing people plan further out and those in secondary cities are not really feeling the need."
Frank McVeigh, president and CEO of McVeigh Associates, a meeting and incentive management company that represents a number of major pharmaceutical companies including AstraZeneca Pharmaceuticals and Merck & Co., said many of his clients still expect to find last-minute deals.
"It's getting harder to get good space because the economy has perked up again, but we're still buying a tremendous amount of last-minute meetings with 30 days out and 200 to 500 rooms," McVeigh said. "We have an unbelievable amount of last-minute requests."
McVeigh said he expected last-minute requests to continue because corporations have become used to finding good space on short notice, "but now it's going to get a little harder to find the hotels they like to go to."
Reardon said Carlson's national sales desk has noticed an increase in group business since October. She said she expects the volume of group business to grow this year. "It seems there is a pent-up demand for meetings," she said. More group demand is good news for Carlson, Reardon said, because the chain has found that groups can be as profitable as transient business.
"Groups can be just as lucrative as long as they're priced correctly and the food and beverage requirements make up for the transient rate," Reardon said. "Hotels are going back to food and beverage minimums and holding groups accountable for those minimums."
Room rates in major cities for both group business and transient business are increasing, she said, but buyers may feel the most price hikes for other services. "In the past, we may have been a bit more flexible on food and beverage terms. Those are probably the terms that they're tightening," she said.
Much of Carlson's corporate group business also has shifted to secondary city markets, Reardon said, though she said it was still unclear if groups have been pushed out of major cities by price or competition. Many group buyers have realized that secondary cities can be a better bargain, she said, and that these cities are more suitable for the type of meetings scheduled.
"The one trend that has stuck since Sept. 11, 2001, is that we're not seeing the national meetings come back. They're still more regional in approach, and when you go regional in approach, you already start considering some secondary cities," Reardon said.
Charlotte St. Martin, executive vice president of marketing for Loews Hotels, said during the past four years the chain focused heavily on corporate group business and some planners became "spoiled" by being able to plan events at the last minute.
"We see lead times shortening, but we're also hearing from Miami that people who love the hotel can't get in, so they're going to have to start planning further in advance," St. Martin said.
Loews has made an effort to push group business to weekends and other low-demand nights at properties in anticipation of competition for space from transient travel, she said.
"We do see business travel growing this year and we will always make room for our business travelers," St. Martin said, but added Loews will use incentives and revenue management techniques to keep group business strong.
"The whole principle of revenue management is to put the right business in at the right time," St. Martin said. "If the group would arrive on Sunday and depart on Tuesday, the rate could go down by as much as $75, which is a big drop, so groups are doing it. The revenue management strategy says if you are willing to work with us, then we'll work with you."
The swing back to a seller's market for hotels and higher rates for corporate short-term meetings long has been expected. Bjorn Hanson, global head of hospitality and leisure practice for PricewaterhouseCoopers said the full scope of the recovery in the hotel industry wasn't analyzed until late last year
(Meetings Today, Feb. 7), but that now hotels clearly hold the advantage in negotiations. Hotels also have begun to strengthen yield management methods for meeting space by charging more for meeting space in peak hours, he said.