< PrevNext > Demand Drives U.S. Hotels By Dawit Habtemariam / March 27, 2018 / Contact Reporter Share The average cost of a hotel room in the U.S., including taxes and fees, rose from $177.36 in 2016 to $180.12 in 2017. Perennial gateway cities topped the chart. New York’s average daily rate was $392.95, followed by San Francisco at $387.20, Boston at $344.49 and Washington, D.C., at $325.30.Biggest Movers by Hotel CostsThe biggest jumps in hotel costs came in cities near Silicon Valley, and travel managers can expect rates in these cities to keep rising as Google, LinkedIn and Facebook build new campuses and buildings. “The market is so compressed that it’s even difficult to get your negotiated rate,” said Carlson Wagonlit Travel director of hotel solutions Eric Jongeling. He added that his clients search for cheaper hotel options in nearby Oakland and San Jose. Oakland’s average hotel room rates rose 8.5 percent to $242.42, and San Jose’s rose 6.5 percent to $278.75. Travel and Transport partner solutions group VP Erik Shor saw the same “spillover” city trend. “It’s so expensive in San Francisco [that] when demand rises, places like San Jose ride the high tide,” he said.The Pacific Northwest is seeing similar drivers for its rising hotel costs. ADR in Seattle rose 6.3 percent to $269.29, thanks to the expansion of big companies like Amazon and Microsoft. “There are so many big corporations there experiencing so much growth. It really puts stress on the hotel inventory [and] creates a high rate-growth potential,” said Jongeling.In the middle of the country, Nashville’s hot convention market drove average hotel rates up 5.2 percent to $221.97. “[Hotels are] taking advantage of the [convention travel] demand and pushing transient corporate rates up, as well,” said Shor.Not all the biggest movers went higher. Minneapolis hotel rates fell 5.9 percent to $200.81. BCD Travel VP of global hotel strategy Marwan Batrouni attributed the decrease to oversupply, even during the time leading up to the Super Bowl this past February. “The demand has not gone up with the supply, [so] hoteliers were not able to command higher rates moving into negotiations,” said Batrouni.According to BCD’s data, which informs the Corporate Travel Index, New York saw the biggest dollar increase among gateway cities, while CWT’s Jongeling saw a decrease and Travel and Transport’s Shor saw a slight increase. However, all three said the market has cooled from previous years. Batrouni forecasts flat growth heading into 2018.Jongeling said more midscale and lower-upscale hotels have entered New York. “In years past, it was all upper-upscale, and I think it really has put pressure on the ADRs of those higher-tier properties to compete for business,” he said. Airbnb also may figure into the New York story. Batrouni said availability issues drove some of BCD’s corporate clients to the sharing economy. However, Jongeling and Shor both said they saw little impact, if any, from Airbnb.Macro TrendsJongeling said the gateway cities could be negatively impacted by declining inbound international travel due to the political environment in the U.S. Jongeling also said the markets that big companies like Amazon pick for additional headquarters locations could change hotel rates overnight. So keep a close eye on Atlanta; Austin; Boston; Chicago; Columbus, Ohio; Dallas; Denver; the D.C. region; Indianapolis; Los Angeles; Miami; Nashville; New York/Newark; Philadelphia; Pittsburgh; and Toronto. All are cities in the running for that Amazon windfall.Travel management company executives who talked to BTN called Atlanta a market to watch, regardless of Amazon’s decisions. Other companies are expanding into the city, and Batrouni, for one, forecasts that hotels will increase their corporate negotiated rates significantly this year. None of the consultants expect business travel demand for hotel rooms to diminish anytime soon. This align’s with the U.S. Travel Association’s outlook for business travel, which predicts the number of domestic business trips will rise to 473 million in 2018, up 9.1 million from its estimate for 2017. Moral of the story: Don’t expect prices to go down, and sharpen your negotiating pencils.