Hotel programs in key domestic corporate travel markets, most sitting at a disproportionately high rate premium over the rest of the country, bring sizable challenges even to travel buyers with considerable volume or longstanding relationships with area hoteliers. An influx of supply in most of these markets combined with a looming shift in the current hotel seller's market, however, is giving some buyers and analysts a better outlook for these cities.
Like in New York
(BTNonline, April 14), location is the key challenge in other top corporate travel cities. City centers themselves will always have price premiums because of their higher preponderance of upscale versus midprice properties and a supply limited by the city center size, said Bob Brindley, vice president of BCD Travel's Advito consulting division. This is compounded in smaller cities like Boston, he said. "Geographically, some cities are just small from a square-mile perspective," Brindley said.
At the same time, some key market cities are so vast that setting up hotel programs within them can be like setting up hotels in several cities. "In Los Angeles, I could need 15 hotels because they're all spread out in a huge circumference," said Cynthia Gillen, director of procurement and travel management for BDO Seidman. "If you're talking about Orange County travel in the same breath, it might be smarter to have fewer hotels, because there's no need to travel out of the immediate area."
Still, like New York, most of the top cities also have plentiful new properties coming online. As far as year-over-year increases in negotiated rates in 2008, Chicago is second to New York, Advito's Brindley said. New properties might offer some mitigation in that regard, Gillen said.
"In Chicago, we have several über-deluxe properties coming online, and at the same time, many of the lower tiers are going to be opening up," Gillen said. "However, it's still going to be high occupancy. Chicago has always been difficult."
In other city centers, the rate at which negotiated rates are growing is softening a bit, even in such difficult negotiating cities as Washington, D.C., Brindley said. "The government rates in Washington are a lot lower," he said. "For the rest of everybody else who has to business there, it has been a difficult market to negotiate in, but Washington is falling along with the other city centers."
New convention centers are counteracting the brighter outlook in some cities. Seidman's Gillen, for example, said the new convention center in Boston would make the city's capacity situation similar to Chicago's.
The Las Vegas Convention Center also is undergoing a major renovation this year
(BTNonline, Feb. 4), and it's the type of market that has increases spawned by a combination of business, convention and leisure, Advito's Brindley said. Although Las Vegas' overall hotel rates are more moderate compared with other key corporate travel cities—it's ranked 55th in
Business Travel News'2008 Corporate Travel Index—the constant inflow from those three sources also means less variance in price, said James Horvath, chief technology officer for hotel technology supplier Revelex. "Like in New York, Las Vegas is not as cyclical as you're going to get in the other locations," Horvath said.
Supply growth also is rapid in Las Vegas. Bobby Bowers, vice president of operations for Smith Travel Research, said Las Vegas led the nation in adding rooms in 2007.
Philadelphia, too, is seeing an expansion in its convention center and has benefited from greater occupancy as a result. As a result, the city is seeing a sudden addition of new hotel space—such as the Kimpton Hotel Group's Hotel Palomar, a W Hotel and a Le Meridien Hotel—that is expected to ease occupancy there.
San Francisco, meanwhile, has seen a number of its properties undergo major renovations in recent years—such as the Hyatt at Fisherman's Wharf, which last year renovated rooms, added a fitness center and reconstructed the lobby—even though the city's supply growth has been slow during the past several years
(BTNonline, Sept. 25, 2006).
In all, however, Advito's Brindley said that even in these key cities, negotiations this year could yield more positive results for travel buyers. "It's a combination of capacity and enough new construct to start to outpace demand," Brindley said. "The increases are still there, but it's going to be in the 3-to-5 percent range instead of the 7-to-10 percent range."
(Editor's Note: This is the first of a two-part BTNonline
series on the top domestic hotel markets. Yesterday's feature focused on New York market conditions.)