As the corporate and contract hotel rate negotiation season is about to begin, the outlook is for the largest increases in the past three decades.
Corporate and contract rate negotiations generally begin during September and continue into December. Corporate and contract rates represent almost 20 percent of occupied U.S. room nights and almost 30 percent of U.S. lodging industry revenue.
The emerging outlook is for corporate contract rates to increase the most since NYU started preparing this forecast, with a national average of 6.5 to 7.5 percent for 2016. This would be the largest increase since 2006 or 1987 depending on the final result. This is a larger increase than the approximately 6.25 percent for 2015, which was the largest increase since 2006. Overall average daily rate (ADR) is expected to increase approximately 6.0 percent in 2015.
A trend that started in 2010 and has accelerated through 2015 is to charge separately for some services and amenities instead of including these charges in negotiated room rates. In 2010, for example, it was common for corporate and contract rates to include services and amenities including internet access, fax charges, use of fitness centers, and breakfasts; that practice has generally been reversed.
Corporate management is attempting to control travel costs, especially for hotels, in an environment of increased business travel with hotel room rates increasing at approximately three times the rate of inflation.
There are several practices to respond to average daily rate increases:
- Buyers are reallocating their portfolios of contract rate hotels to include more upscale, select service and limited service hotels in place of upper upscale hotels and full service hotels.
- Some corporate travel departments allow travelers to select hotels that are not included in the portfolio of hotels with negotiated rates. This can be especially popular among younger travelers and can have the effect of lowering the overall average rate while increasing travel experience satisfaction.
- There is a general pattern of greater enforcement of corporate travel policy and auditing of employee expense reports and hotel compliance with the contracts.
These estimates are based on selected interviews with industry executives and corporate travel executives, analysis of industry financial data, press releases, and information available on hotel and brand websites.
Trend Analysis Report from: NYU School of Professional Studies