March 09, 2011

Caution: Higher hotel rates ahead


The combination of a recovering economy and cost pressures for hotels will lead to higher room rates for meeting planners, cautioned Michael Dominguez, vice president of global sales at Loews Hotels at a recent industry conference.

After a bleak 2009, meetings started to come back in 2010 and occupancy rates came back too, jumping about 5 percent in 2010. Average daily rate, however, was slightly down as hotels were still working off short-term deals they cut in 2009 and early 2010 to fill rooms.

With occupancy projected to rise another 2 percent in 2011, demand is expected to increase. Meanwhile, new supply is slowing as the number of new hotel projects in the pipeline decreases. In 2011 and 2012, supply is expected to increase just 1 percent each year, the lowest rate in five years. Given these trends, ADR is expected to jump about 4 percent in 2011 and even higher in 2012, said Dominguez, citing data from PKF Hospitality Research. After 2012, the rate increases will probably moderate.

But there are other forces that are causing hotels to increase rates. By 2013, hotels will have billions of dollars of mortgage debt coming due, so many will be under cost pressures and will need to get margins in line to assist in refinancing, said Dominguez. Also, he added, hotels are coming off a historically bad 2009 when RevPAR (revenue per available room) dropped 17 percent, farther than any year since the Great Depression. The losses essentially wiped out gains made in the boom years prior to the recession, he added.

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