Corporate hotel rates for 2011 are trending as forecasted with slight increases, but buyers negotiating in high-occupancy cities are facing premiums on last-room availability and multiple negotiating rounds that potentially could require an extension of current rates.
Many hotel chains pushed for larger-than-expected increases during the initial round of negotiations, said Bob Brindley, vice president of BCD Travel consulting division Advito. In high-demand markets, where Advito had forecast increases of 5 percent to 6 percent, many hotels targeted increases of 10 percent to 15 percent, he said. In New York, where Advito forecast a 13 percent increase, hotels asked for increases of 20 percent and above.
"Almost everything is requiring three or four rounds, and we knew that going into it," Brindley said. "During negotiations, we've been able to get those down into the forecasted range."
U.S. cities with traditionally high hotel occupancies are on track to reach 2008 occupancy levels by the second quarter of 2011, according to Lisa Maloney, project manager for Carlson Wagonlit Travel's Hotel Solutions division. San Francisco, which had a 59 percent occupancy rate at the end of 2009, was at 90 percent as of October. Chicago's occupancy rate rebounded to 73 percent in October from 45 percent in December 2009. CWT reported New York's occupancy reached 86 percent last month.
Industry analysts also have been steadily shifting their forecasts upward. Smith Travel Research, for example, last week bumped up its occupancy projections for both this year and next year, though it held to its earlier forecast of nearly flat average daily rates for this year and a 3.9 percent ADR increase in 2011.
"2010 has been a better year than anyone expected in January," according to STR president Mark Lomanno. "Demand has been a pleasant surprise, and it really is the driver behind the kind of year we've experienced."
As occupancy rises, buyers who easily secured last-room availability during the past few years now must pay for it. CWT Hotel Solutions director Mauricio Molina said those premiums generally are 10 percent to 15 percent in high-occupancy cities, though LRA in lower-occupancy markets still can come without a premium.
Advito's Brindley said some buyers are mitigating rate increases by asking hotels to include in rates Internet access, breakfast and health club access. Conversely, rate-focused buyers are considering giving up those amenities.
"It's been harder to get them to include some of these things," CWT's Maloney said. "You have to think about what you want to negotiate. If you're looking to keep the rate at the low level, you might have to give up some of these amenities."
Both Brindley and Maloney said that more buyers also are implementing rate caps in high-occupancy cities in preparation for expected availability problems next year. "This ensures that if nonpreferred properties are used, they fall within the price range of preferred properties and will only be used if preferred properties are not available," Brindley explained.
Molina said some buyers are looking at nontraditional methods for their hotel program, including permanent room allotments at hotels in high-occupancy cities whereby the corporation pays regardless of whether they use the rooms. This practice guarantees space at a known rate in a city at any time, though it only works in tightly managed programs in which buyers know their precise room night volumes.
Maloney said such policies are uncommon, though she has seen buyers use it in places where availability is challenging, such as India.
In a few regions, buyers are facing easier-than-expected negotiations, Brindley said. Advito had forecast slight increases in Canada, for example, but those rates are coming in with slight decreases, he said. Economic uncertainty in southern Europe is softening rates there.
Some buyers, however, are asking to extend 2010 rates in high-occupancy cities through the end of January so they can maintain their programs while they complete negotiations, Brindley said. Hotels will do this only for buyers with whom they have long-established relationships and when a new deal is imminent, he said. In other cases, buyers might need hotels to temporarily load rates from early rounds of negotiations, ensuring they have something available for their travelers when 2010 contracts expire.
As forecasts inch upward, Maloney advises buyers not to delay a final deal for too long. "We're recommending they engage sooner than later," she said. "We know [occupancy and rate in] markets are increasing, so it's best to do it sooner."