Big-City Hotel Rates Expected To Increase

While six straight years of rocketing occupancy finally will slow this year, city-center hotels will hike rates from 5 to 10 percent.

Coopers & Lybrand forecasts that average daily rates will climb 5.9 percent in the luxury tier, 5.4 percent in upscale, 6.1 percent in midpriced, 5.8 percent in economy and 3.9 percent in budget.

But the most desirable city hotels will jump midweek rates even higher-10 percent over about 40 weeks of the year. In addition, midweek rates in Boston, New York, and San Francisco could climb 20 percent, said Bjorn Hanson, Coopers & Lybrand's hospitality industry chairman.

"It's a tale of two markets," said Robert Mandelbaum, director of research and vice president of PKF Consulting.

After surveying 3,000 hotels-averaging 220 rooms each-in 42 major cities, PKF projects this year's occupancy to hit 73.7 percent in key business markets. Coopers & Lybrand forecasts overall occupancy to reach 65.6 percent nationwide in 1997, a slight drop from last year's 65.8 percent. The limited-service construction boom should cause a dip in occupancy to 65.5 percent by 1998 and to 65.4 in '99, Hanson said.

Yet rates are growing even where occupancy is falling. From 1995 to 1996, occupancy actually declined in 21 of the cities PKF surveyed, and occupancies in 10 cities will dip this year over last year, Mandelbaum said. Even as oversupply beyond city limits curbs occupancy, "demand is still growing because travelers tend to want rooms all at the same time, Monday through Thursday," he said.

Indeed, some business hotels are conjuring up new twists to weed out demand. "We're at a point where hotels are still kind of shocked at how good things are and are experimenting with how to maximize revenue," Hanson said.

For instance, a Courtyard by Marriott in Pleasanton, Calif., requires a two-night minimum stay midweek. A Hyatt in San Francisco capped room nights for a new corporate client at 400. And a Holiday Inn Select in Foster City, Calif., ushered in a graduated rate scale for midweek nights, requiring guests who stay just one night to pay more.

"It's a good way to level traffic, but it's slightly dangerous," said Runzheimer International senior consultant Rolfe Shellenberger. He said a Courtyard in Atlanta recently charged him $20 more for a Thursday than for Wednesday. "Travelers are going to discover that some of these so-called second-tier properties-Hampton Inn, Econo Lodge, Red Roof and some of the Best Westerns-are a super deal," he said.

According to a Hogg Robinson BTI survey based on global bookings for the first half of 1996, New York and Washington, D.C., had the highest U.S. rates, placing 9th and 14th, respectively. New York also will be the city with the fastest-growing room rates this year, according to PKF (see chart, Page 1).

Barring an economic downturn, city-center hotel rates will fall only when travelers head for the suburbs, Mandelbaum predicted. Although he acknowledged that many business travelers don't want to commute, many meeting planners are shifting their groups out of the major cities, he said.

The lack of development in downtown markets will help keep prices higher. Even in cities that need a new hotel, developers tend to stay away, said Chuck Ross, vice president of Smith Travel Research. "Downtown areas face high land costs, permitting and zoning is a long and expensive process, and getting the financing is a problem," he said.

While domestic rates will be high, 17 countries top the United States in average hotel rates, according to the Hogg Robinson BTI survey. The Russian Federation garnered the highest rates, followed by Hong Kong, Switzerland, Japan and the Czech Republic.

Among international cities, Hong Kong had the costliest rooms, followed by Moscow, Venice, Zurich, Osaka, St. Petersburg, Tokyo, Kowloon, New York and Stockholm.

Japan's average rates jumped the highest of all world cities-28 percent. BTI chief executive David Radcliffe attributed the rate hike to shifts in business from the less expensive provincial regions to major cities, although Tokyo fell from the most-expensive city slot down to seventh.

In Europe, rate jumps were highest in Poland, Sweden and Italy, at 16.8, 12.9 and 11.2 percent, respectively. Rates in France rose just 1.2 percent, while rates declined in Belgium, the Netherlands and Germany.

This year also will mark at least five headline-making mergers, as well as scores of smaller weddings, Hanson said.

"The number of mergers and strategic alliances under discussion for '97 is the greatest I've seen in the 28 years I've been in this industry," he said. Hanson also noted that the Carlson-Regent deal (<I>BTN</I>, Dec. 16, 1996), which marked the luxury tier's foray into franchising, should spur similar ventures.

Regional chains-currently numbering about 60 worldwide-and independent hotels increasingly need affiliations to keep up with global travel patterns and expensive technology, according to Hanson. "I don't think any hotel could say that they're better off being independent and would never need the benefits of a chain or alliance," he said.