Hotel Rates on the Rise

By Matt Swenson, March 3, 2015

Combine high demand, even higher occupancy and a historically low supply, and you have a recipe for increased room rates meeting planners are forced to choke down when booking rooms for attendees.

The pendulum has swung back in favor of properties in the cyclical switch between a buyer’s and seller’s market. The trend isn’t expected to reverse itself anytime soon. But for planners, it could be worse, says Bjorn Hanson, clinical professor at NYU Preston Robert Tisch Center for Hospitality and Tourism.

A variety of sources—including Hanson, MPI and American Express Meetings & Events—all predict hotel room rates will increase between 4 and 6 percent in 2015. “That is actually very low considering the occupancy rate,” says Hanson, adding planners are still benefiting from negotiating rates when the effects of the Great Recession were being felt as late as 2010.

As it stands now, Hanson says 2014’s occupancy rate will land at a little more than 64 percent, shy of 1995’s record of 64.8 percent, as measured by STR, a hospitality benchmarking organization. PKF Hospitality Research is predicting a record 65 percent occupancy rate in 2015.

Prevalent online deals and competition from rising hospitality companies such as Airbnb and HomeAway have minimized the rate damage even though the number of hotel rooms has not increased at the same clip, Hanson says.

Nevertheless, rates are only going to continue to rise for the foreseeable future, predicts Kevin Beckman, director of strategic accounts
at Crowne Plaza Louisville.

Outside of New York, room supply has been slow to meet the needs of business travelers and conference-goers. There was a 35 percent increase in additional rooms in 2013, and the outlook is favorable for 2015, says Hanson. But, he cautions, “The percentages sound large, but the numbers aren’t.” Lenders remain tepid about the hospitality industry’s up-and-down nature, he says.

Hanson predicts it will be easier to secure financing for new construction in 2017-18 because the industry will have demonstrated its strength for a longer period than usual after a downturn. “The industry will be at a new plateau,” he says. “It will be safer for investors than it has been.”

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