Despite hoteliers entering 2014 with forecasts of possible
record-breaking occupancy, corporate travel buyers largely avoided significant
increases in their negotiated hotel rates, according to preliminary results
from analysts.
On average, Carlson Wagonlit Travel's hotel solutions group
reported the average negotiated corporate rate was up 1.2 percent globally
compared with the 2013 rate. By comparison, 2013 rates averaged about 3 percent
higher than 2012 rates.
"Overall, it's been a good [request-for-proposals]
season for the buyers," CWT hotel solutions group director Yon Abad said. "Rates
are increasing but much more slowly than last year."
Marwan Batrouni, hotel practice leader for BCD Travel's
Advito consultancy, saw similar results, noting a global rate increase in the "low
single-digit" percentages, though getting there required multiple rounds
of negotiations. "At the beginning of the season, suppliers were very confident
in what they could do this year, but corporate clients were ready to push back
just as equally," he said.
Even so, buyers faced steep rate hikes in certain pockets,
particularly in the Americas. The average corporate rate in San Francisco is up
7.2 percent compared with 2013, and hotels in nearby Palo Alto had increases
between 12 percent and 18 percent, CWT's Abad said.
As the tech boom continues, rates in that area will become
even more challenging for buyers.
"San Francisco continues to be on fire, and there's
virtually no change in supply," PKF Hospitality Research president Mark
Woodworth said. "The expectation is that demand is going to continue to
grow."
With the energy sector also performing strongly, Houston was
another tough market for buyers, with the average corporate rate up 5.6 percent
this year, according to CWT. In sections of the city where oil companies are
building new campuses—The Woodlands, for example—rates are up about 10 percent,
Abad said.
Overall, however, the average corporate rate in the United
States was up 2.3 percent, compared with a 5.3 percent increase last year, he
said. Concord Hospitality, which manages more than 90 largely upscale and
select-service hotels across the United States and Canada, increased its negotiated
rates between 4 percent and 6 percent year over year, president and CEO Mark
Laport said.
"We didn't get the 5 percent to 8 percent we wanted,
but we're getting good volume from our best customers, so barring any
aberration, it should be another year of revenue per available room increases
of 5 percent or more," he said. "We're actually back beyond that high
watermark of 2007, where we all in this business said, 'How's it going to get
any better than this?' "
Global Results
Results were similar in Latin America, with corporate rates
up but to a lesser degree than the year prior, according to CWT. In Brazil, the
average corporate rate increased by 5.2 percent, compared with a 9 percent
increase last year; in São Paulo, hotel rates are up between 4 percent and 7
percent, "much less than anticipated," Abad said.
The overall average corporate rate in Latin America was up
2.6 percent, CWT reported. Apart from Venezuela—where rates were up almost 30
percent—and Brazil, they were down in most other markets, including Argentina
and Colombia.
Corporate rates on the whole were stable in the Asia/Pacific
region, up by 2.7 percent in Hong Kong but down in China, Japan and India, CWT
reported. The Middle East was stable, too, and rates in Africa averaged a
low-single-digit percentage increase, Advito's Batrouni said.
In Europe, the average rate increased about 0.4 percent,
Abad said, with prices up in the United Kingdom and France but down in Italy,
Portugal, Spain and Greece. Buyers faced challenges beyond rate in Europe,
however.
"In Europe, more and more properties and suppliers were
trying to push for non-last-room-availability rates as part of their
yield-management strategy for 2014," Batrouni said. "We've seen it in
the past, but we felt like this year, there was more of it."
On a wider scale, last-room availability was not necessarily difficult to achieve in
all markets but generally came at a premium of 3 percent of the room rate and
as high as 15 percent to 20 percent in some destinations, CWT's Abad said.
He added that CWT considers the value of LRA a key topic to
address this year.
"We want to understand, based on data, what the
benefits of last-room availability are, and if the benefits really justify the
value," he said. "Most clients tell us to go for it on all their
hotels, but that's like taking all the channels in your cable package without
knowing whether you're going to watch them all."
Challenges For Buyers
Securing rates was only part of the battle for this year.
Analysts project occupancy in the United States, at least, will continue its
upward climb. If it happens, it will mark the first time in history that such
occupancy has grown for five consecutive years, PKF's Woodworth said. Finding
space in high-volume urban markets, therefore, should be a challenge.
"Hotels in urban environments in the United States are
running at an occupancy level that's higher than it's ever been in history, and
it affords the [hotel] manager the luxury of becoming much more judicious,"
Woodworth said. "This idea of scarcity is going to become more of a
problem."
All three hotel demand segments—leisure, corporate transient
and group—should grow this year compared with last year, Woodworth added.
Though group demand last year struggled to keep pace, Concord's Laport said he's
expecting "the strongest group year we've seen since the recession."
With very little supply on the way, hotels will be in a
stronger position to increase rates further the next time negotiations come
around.
Speaking at The BTN Group's Travel Management 2014 event in
December, Citi managing director and global head of general services and travel
Mick Lee said she's seen suppliers turn away business more frequently than they
have in recent years.
"We're finding that in cases where we have a lot of spend,
maybe they don't want 10,000 room nights coming their way," she said. "They're
able to pick and choose."
Advito's Batrouni added that he saw "more suppliers
driving conversations around chainwide discounts and agreements. Suppliers are
looking more for total revenue rather than being focused on market-level market
share."
The larger economic picture shows promise for hoteliers.
Speaking at January's Americas Lodging Investment Summit in Los Angeles, former
Federal Reserve Board of Governors member Kevin Warsh said the U.S. economy
should have a "year that is a bit better though filled with risks"
and likely would "chronically" outperform many of its trading
partners.
"We've had a nice recovery without much [gross domestic
product] growth, and now we have a supercharger in place, with GDP growth in
the 3 percent range or even beyond that as a booster to power our engines in
the hotel business," Cornell University School of Hotel Administration
real estate professor Jack Corgel said. "You could easily paint a scenario
where this will be a terrific year."
While hotels in San Francisco and such big energy hubs as
Houston, Denver and Dallas are poised to have a strong year, there also are "hidden
gem" cities that could strengthen, Corgel added. Chicago, for example, is
getting a boost in demand from a growing biomedical technology sector in the
city, he said.
Other cities PKF has tagged for average daily rate increases
of more than 6 percent year over year in 2014 include Boston, Los Angeles,
Nashville, Charlotte and Portland, Ore.
As those markets strengthen, CWT's Abad said he expected
more companies this year to keep an eye on their negotiated rates relative to
publicly available hotel rates, particularly as such rate-shopping tools as
TripBam and Tingo are expanding their reach. Those tools, he said, are adding a
new dimension in corporate hotel spend management.
"I'm not saying it's going to replace the negotiations,
but [buyers] will be relying more on the market's movement," Abad said. "There
still will be a need for a foundation and for top properties, but understanding
what is going on in these markets is really precious."
This report
originally appeared in the February 2014 edition of Travel Procurement.