Hoteliers and buyers are wrapping up their most challenging rate negotiations in several seasons. While most buyers staved off significant increases, some did so only after agreeing to stricter terms and conceding certain amenities. The negotiating environment could become even more difficult for buyers in the coming years.
Industry analysts indicated rates largely appeared in line with expectations. For example, Bob Brindley, vice president of business development for BCD Travel consulting division Advito, said average rates had been coming in with increases of between 3 percent and 5 percent. Increases in such high-volume cities as New York, Boston, Washington and California's major markets were a bit higher, generally in the 6 percent to 7 percent range, said Carlson Wagonlit Travel North America hotel solutions director Mauricio Molina.
Getting to those numbers required more negotiating rounds than usual. Three rounds is standard, Brindley said, but for 2011 rates, four or five was the norm, leading to an overall longer negotiating season. Advito by mid-January had completed about two-thirds of its client programs.
Both buyer and seller took firm stances. Hotels came to the table with aggressive rate hikes in mind, particularly considering average daily rates on an annualized basis have been well off their peak levels, according to STR vice president of global development Jan Freitag. In most markets, rates are between $10 and $20 off their peak and in New York, they are $50 off their peak, he said during the recent Americas Lodging Investment Summit in San Diego.
"With the economy slowly turning around the corner, giving very shy but certain signs of recovery, we all were expecting to see inflation in hotel rates across North America," said Molina. "Hotels came to the table with firm expectations of not doing a lot of concessions in terms of rates."
[PULL_1]"A lot of the C-suite executives are starting to understand some of the changes that transpired, that it's no longer a buyer's market, but we're not a market leader in terms of pricing," Dowling said. She added that Best Western would have to wait for upscale brands that had discounted their prices to be competitive with Best Western to raise rates before the company could do the same.
Hoteliers Optimistic
Hoteliers are optimistic that will occur this year. Thus far, hotel industry revenue growth has come largely from increases in occupancy, not rate. For full-year 2010, occupancy increased by 5.7 percent from 2009 levels, but rate remained nearly flat, according to STR. With an expected 3.2 percent increase in lodging demand this year, PricewaterhouseCoopers predicted a 5.1 percent increase in 2011 rates.
Starwood's van Paasschen said the U.S. hotel industry appears to be "on the verge of a multiyear surge in rates." Starwood CFO Vasant Prabhu said industry recovery during the fourth quarter of 2010 was powered by strong growth in corporate transient business and that further growth this year depends on rate.
"Hotel supply [in North America] is unusually tight at this stage, with virtually no new hotels being built, and demand is strong and getting stronger," van Paasschen said. "The next three to four years could see the strongest real growth in rates in North America that we've seen in decades."
Van Paasschen also indicated that group travel--which has had a more sluggish recovery than transient--also is beginning to rebound, with booking windows increasing and a fairly strong December in terms of group bookings.
Speaking at the ALIS conference, Marriott International president and COO Arne Sorenson said signs point to a broad economic recovery this year, which would mean proportionately more growth in revenue per available room in 2011 compared with 2010.
"Now, you have to look to find markets that aren't strong markets of recovery," Sorenson said. "If you look at this, we should see continuous strength in pricing."