With the hotel sourcing season for 2019 corporate negotiated rates well underway, it’s expected that U.S. corporate rates will increase between 2.5 percent and 3.5 percent next year, according to an analysis from New York University’s Bjorn Hanson.
Hanson, an industry consultant and adjunct professor at the New York University School of Professional Studies Jonathan M. Tisch Center for Hospitality and Tourism, said both buyers and sellers went into this negotiation season from perceived positions of strength. Hotels entered with expectations of increases in the 4 percent to 5.5 percent range and corporates entered expecting increases of 1.5 percent to 2 percent.
For hoteliers, occupancy is the highest it’s been since the early 1980s. Though they’ve struggled to leverage that to drive significant rate growth in recent years, average daily rate is increasing more in 2018 than it did in 2017, between 2.5 percent and 3 percent this year, and that trend is expected to continue in 2019. Group demand, Hanson notes, has already increased more this year than previously forecast.
The hotel industry’s inability to grow rates as expected in recent years is no secret to travel buyers. Many, Hanson said, feel they overpaid between 2016 and 2018 by submitting to greater corporate rate increases than the industry was able to realize overall. To illustrate the industry’s slow rate growth, Hanson pointed out that the last time occupancy was above 66 percent, as it is now, average daily rate increased 12 percent—9.5 percent over the rate of inflation. In 2018, rate is expected to increase only 0.5 percent to 1 percent over inflation. Another benefit to buyers is the growing range of hotel alternatives, including Airbnb, which has been gaining acceptance in the corporate travel market.
Another factor impacting the 2019 hotel negotiation season is concern around member rates and nonrefundable rates from brand.com websites that, though aimed at cutting into commissions paid to online travel agencies, are sometimes lower than corporate, contract or convention rates. Services and amenities, which have been a major negotiating point in the past, have been less of a priority this year.
