European Hotel Rates On The Rise, With Few Exceptions

<B>European Hotel Rates On The Rise, With Few Exceptions</B>

By Amon Cohen

August is a time for taking stock, enjoying the sunshine and heading off to watch the summer's blockbuster movies. No such luck for travel managers, however. Their minds are more intent on the paraphrasing of a hit film from 30 years ago: 2001--A Rate Odyssey. Yes, it is hotel contracting time once again and this coming year looks like another horror flick for purchasers in Europe, with the continent's booming economy sending prices up beyond inflation.

"Europe as a whole is on an up-curve," confirmed Melvin Gold, director of Pannell Kerr Forster's hotel, leisure and tourism consultancy, which has just published its annual city survey for Europe, Middle East, Africa and South Asia. "Twenty out of the 30 cities we surveyed in Europe are in a very strong position and even in most of the other 10, conditions are only slightly in favor of the buyer."

Certain destinations have been commanding top dollar since the mid-1990s, particularly Paris and London. According to the PKF survey, London had the highest occupancy rate in 1999 (80.9 percent), although its average achieved room rate of US$209 was second to Paris, which notched an impressive US$239. The survey is arguably the most authoritative on the market, since it consolidates information from 85 percent of all quality hotels in the 52 cities it covers.

As well as the consistently high performance of the British and French capitals, several other destinations currently are enjoying hot streaks, including Amsterdam and Barcelona. Like Paris and London, these two cities are popular with business and leisure visitors alike, making room availability hard to find at all times of the weekly and annual cycle. Yet, all is not gloom.

Fredrik Korallus, senior vice president of marketing and sales for Radisson SAS, said hotel chains are taking a more balanced long-term view in their relationships with corporate clients. "Hoteliers are trying to show commitment to their customers in good times and bad times," he said. "Even a city like Amsterdam will one day experience a decline in demand, so we don't want to be perceived as arrogant there at the moment. We are not going to gouge the customer." There are, however, exceptions to this sensible policy, according to Korallus. "London is one city where they often forget that good times are followed by bad times," he said.

While travel managers ponder their RFPs, here is a city-by-city guide to Europe in 2001, based on the forecasts of Gold and Korallus. Heavy rate rises can be expected in the following:

* Brussels "is on an up cycle," said Gold. "There has been a moratorium on hotel development, so supply and demand have been getting back into balance." The PKF report showed that occupancy actually fell from 70.0 percent to 67.9 percent in 1999, but this was owing to the superior hotels introducing efficient yield management, enabling achieved room rate to soar 13.2 percent.

* Copenhagen, with the third-highest occupancy rates in Europe and limited growth in supply, also has fast-growing rates. A Hilton and Marriott will contribute 750 new rooms next year, with more openings to come in 2002, but demand still is likely to be exceptionally heavy at peak times. Korallus reported very brisk business in Copenhagen, and also in the Swedish town of Malmo, a 10-mile bridge between the two having opened earlier this summer.

* A fast-expanding economy spurred by the success of mobile phone company Nokia, plus new-found favor as a novel conference destination, is pushing up rates in Helsinki despite new room supply.

* Paris is Europe's most expensive city for rooms and there is no sign of a let-up in demand, although increases should be less dramatic than in recent years.

* Moscow, St. Petersburg and Istanbul all have suffered disastrous rate declines in the past couple of years, thanks to economic problems in Russia and earthquakes and terrorist threats in Turkey. Occupancy dropped to 43.9 percent in Moscow in 1999, and the average achieved room rate plummeted from US$108 to US$86, with the corporate market collapsing most spectacularly. St. Petersburg and Istanbul have fared almost as badly.

However, it now looks as if all three may have passed the low point of the cycle. "We think these cities were victims of particular events that will be reversed," said Gold. "We are now seeing signs of a recovery." His view is corroborated by Korallus, who said: "We are seeing a positive trend and renewed interest."

* Berlin's rates are moving ahead, in spite of new hotel stock, due to increased activity surrounding the restoration of Berlin as the German capital and last year's return of the country's parliament.

* Of Amsterdam, Gold said there "are not enough hotels, and not enough space to build them." With hotels able to rate-pick, the perenially popular, but long undervalued, Dutch city is increasingly becoming a no-go zone for conference business. It is during times like this that strong multinational agreements will hedge corporate customers against the biggest rises. "Rates will go up above the average for Europe, but for corporate customers we will protect those relationships," said Korallus. The only potential bargains will be found in the slew of new developments planned beyond the limits of the old city.

* Barcelona and Madrid have been chronically oversupplied with hotel rooms since the 1992 Olympics, so rates had been ridiculously low in Barcelona until very recently. However, the thriving Catalan economy and a burgeoning reputation as one of Europe's best conference and good-time cities have driven up occupancy again, with rate following in its wake. "We have seen three consecutive years of 25 percent rate growth," said Gold. "Barcelona won't be able to sustain that, but its prospects are still good." For Madrid, read a less dramatic version of Barcelona. Rates jumped 17.4 percent in 1999 and the outlook for hoteliers remains rosy in the Spanish capital.

* Stockholm's rates shot up 7.1 percent in 1999 and also are doing well this year. Substantial new development partially will apply the brakes next year, but demand will remain strong during peak periods.

It is difficult to spot any European cities where rates will decline next year, but the following likely will be flat:

London: As a major city for leisure visitors, an impressive array of new attractions to celebrate the millennium has been offset by the high value of sterling against the euro. Room supply has increased sharply, however, and with the millennium effect wearing off, 2001 is expected to be flat. Bear in mind, though, that this is a plateau at a lofty altitude--London will remain Europe's second most expensive city.

Geneva and Zurich: After hosting an exceptional number of exhibitions in 1999, rates in Geneva will be less buoyant for a couple of years. Zurich also looks set to be quieter now that supply and demand are in balance.

Budapest and Warsaw: Although performing well, both cities are encountering resistance to further rate increases at the top end of the market.

Rome and Milan: Rome is "coming off a millennium high," said Gold. Milan also is taking a breather after a couple of years of handsome rate increases.

Vienna: The voting into power of the far-right Freedom Party prompted several conference cancellations, which has caused nervous hoteliers to trim rates.

Oslo, Stavanger and Bergen: Korallus attributed slackening demand to a decline in investment in Norway's oil companies. One sector that may pick up is conferences, thanks to the building of new facilities and vigorous promotion by Oslo's marketing office.