07 February 2007 - Corporations this year should expect to pay still higher room rates and encounter ongoing supply shortages in the highest-demand business centers even after a tough 2006 in which they paid higher rates in nearly every region amid increasing occupancy levels, new research shows.
Recognizing robust demand, meanwhile, hotel companies are working to build inventory in the Middle East, China and India. But until many more properties open in such cities as Dubai and Mumbai, keeping a lid on corporate lodging costs and finding availability will remain a challenge.
According to the latest hotel industry statistics from HRG UK, Moscow for the second consecutive year in 2006 had the most expensive hotel rates for business travelers, rising by 25 percent to £ 221.75 (US$434.44). It was followed by New York (£186.23/US$343.22) and Bangalore (£167.45/US$328.06). HRG built its research using a combination of industry figures and actual room nights booked and rates paid by U.K. clients during 2006 versus 2005.
Its findings are just a few in a seemingly endless line of strong indicators in the global lodging sector. In the United States, total 2006 occupancy edged up half-a-percentage point to 63.4 percent and average daily rate rose by 7 percent to $97.31, according to Smith Travel Research. On a worldwide basis, Hilton Hotels Corp. reported a nearly 8 percent higher ADR to $124.59 with occupancy up more than one percentage point to 72.5 percent. Starwood Hotels & Resorts Worldwide experienced similar growth, with global ADR up more than 8 percent to $156.51 and occupancy up roughly 1 percentage point to 70.1 percent.
Noting "limited supply growth in general," Starwood CEO Steve Heyer last week said, "There is little that indicates this lodging cycle is coming to an end. Rate increases will be some of the best ever [in 2007], notwithstanding last year's amazing performance."
According to HRG general manager of hotel relations Margaret Bowler, corporations should "ensure that they have last room availability and that their contracted rates have been loaded on to the global distribution systems. In some instances, hotels are denying business at lower rates, preferring to aim for higher prices--particularly in the busy mid-week period. Our data shows that just 0.1 percent of all bookings are denied due to a hotel being genuinely full."
Bowler also noted that corporate travelers "are failing" to book rooms as early as possible, jeopardizing their companies' chances of finding the lowest rates.
India in particular is undersupplied and, according to HRG, had an average 2006 rate of £126.93. In Mumbai, average rates soared 49 percent year-over-year. HRG cited as drivers India's liberalized international aviation policy and strong demand in banking and finance.
Marriott International by 2010 plans to open three properties in Pune, India and Hilton announced a joint venture to develop as many as 75 midscale and extended-stay hotels in India over the next seven years.
The Global Hotel Alliance recently added India's Leela Palaces, Hotels & Resorts to its network. The alliance also includes Kempinski in Europe, Omni Hotels in North America, Pan Pacific and Marco Polo in Asia, Thailand's Dusit and Taiwan's Landis. Leela's portfolio includes properties in Bangalore and Mumbai, and the company is currently developing deluxe hotels in New Delhi, Udaipur, Chennai (Madras), Pune and Hyderabad. Companies within the Global Hotel Alliance maintain independent operations, but they coordinate sales and marketing strategies. "Partnering with like, mid-size, luxury brands allows us to assist clients that are looking globalize their buying process," said Jesse Suglia, Omni Hotels' global director of business travel sales.
Overall in the Asia-Pacific region, growth in 2006 ADRs ranged from 6 percent at Hilton-branded properties to an aggregate 18 percent jump reported by HRG, fueled by strong numbers in India, Singapore and Hong Kong. Starwood's latest report and recent Deloitte HotelBenchmark data showed growth at 8 percent and 11 percent, respectively.
The Middle East again proved to be among the hotter markets. Reported growth in ADRs included 12 percent at Hilton, 16 percent at Starwood (also including Africa) and nearly 18 percent based on Deloitte numbers. HRG said rates in fast-growing Dubai "show little sign of slowing ... despite reports that up to 80 hotels will open within the next three years."
In Europe, last year's rate growth ranged from 5 percent to 9 percent. Thanks to Moscow, Eastern Europe was the most expensive of any European region, HRG said. In Latin America, Starwood reported 12 percent ADR growth to roughly $120 and a 1.6 percent increase in occupancy to 64.3 percent. Similarly, Hilton said average rates in the region jumped 10 percent to $128 and occupancy increased by nearly 3 percentage points to 71.4 percent.
In North America, very high occupancy rates in such cities as Boston, Chicago, New York and Washington led to another year of higher rates, with predictions of more of the same for 2007. "Hotel rates across the U.S. have generally moved in line with exchange rate changes over the last two years," according to the HRG study. "However, despite a weakening U.S. dollar in the latter half of 2006, the buoyant U.S. hotel industry has seen hotel rates continue to rise."
"Although we anticipate that the hotel industry will see another strong year in 2007, it is likely that we will see some slowing of rate growth worldwide," Bowler said. "Certain countries and cities--for example, India, Moscow and Dubai--will prove exceptions to this general rule as demand outstrips supply, inflating rates accordingly."
Deloitte also expects overall rate growth to slow in 2007, but Starwood CFO Vasant Prabhu was more bullish. "As we enter 2007, corporate rate negotiations are nearly complete with rate increases in the double digits," he told analysts last week. "There is no evidence of any change in transient momentum and the group business is strong."
"Buyers and suppliers that were supported by well-designed strategies and quality data were the most successful," said Omni's Suglia, regarding 2007 rate negotiations. "Transactions that did not include an analytical and sometimes creative approach struggled to reach agreement."
Meanwhile, hotel companies continue to construct new properties, particularly in the Middle East and Asia. Hilton said its pipeline as of 31 Dec stood at 775 properties and 110,000 rooms, "its biggest yet." About 90 percent of all new development is in the Americas, though development elsewhere is expected to comprise "an increasingly larger percentage" of the company's development.
Starwood's pipeline is less robust (400 hotels and 100,000 rooms), but "approximately half" is in non-U.S. locations.
