The Good News on 2017 Hotel Rates
With RFP season for negotiated group hotel rates getting underway for 2017, planners and other buyers of corporate travel can take heart from a report issued last month by the Tisch Center of Hospitality and Tourism at New York University.
After a 2016 that was clearly a seller’s market, the forecast for 2017 is that the pendulum has swung in favor of buyers. Increases in negotiated rates in the U.S. in 2016 ranged from 5.75 percent to 7 percent, according to the Tisch Center. The rate hike was among the largest in decades.
By contrast, the forecast for 2017 calls for increases in the area of 3.25 percent to 4 percent. Tisch Center clinical professor Bjorn Hanson, who oversaw the preparation of the report, refers to the dramatic shift as a “change in the balance of power.”
Underlying the shift is the current state of hotel occupancy in the U.S. Industry-wide, 2017 lodging occupancy is forecast to be lower than in 2016. Meanwhile, 2016 occupancy was lower than in 2015. Experts attribute the downward trend, in part, to a spike in supply growth.
On a relationship level between buyers and sellers, Hanson cites a lingering frustration on the part of many planners and other buyers of corporate travel who came away from rate negotiations last year feeling they had overpaid. This year, Hanson says, they’ll be looking to recover some of that overpayment.
Planners and other buyers are also frustrated when they’ve seen published rates on brand web sites this year that are lower than the rates they were able to negotiate in the RFP process. Historically, the situation had been the opposite.
Why the reversal? The report describes it as a consequence of the brands’ continuing efforts to undercut the popularity of the online travel agencies and regain pricing power of their inventory.
Needless to say, the possibility of lower negotiated rates comes as welcome news to corporate planners and travel managers. Hanson and his colleagues note that many companies face a difficult earnings environment going into 2017, so they’re making a renewed push to control meeting and other travel related costs. This is especially the case when it comes to hotel costs, which, according to the report, have been increasing at a healthy pace. Double the rate of inflation, in fact.
The Tisch Center, which is part of the NYU School of Professional Studies, based the report on interviews with industry executives, corporate travel buyers, industry financial data and rates available on hotel and brand web sites.
As with any broad rate forecast, the situation on the ground will depend on the specific market, size of the group, dates of the proposed meeting or meetings and so on. Planners who are veterans of the RFP process know that the more flexibility and volume projections they can bring to the negotiating table, the better they will fare.
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