After three years of declining hotel rates, consumers are seeing a reversal of that trend and are beginning to experience price increases…
After three years of declining hotel rates, consumers are seeing a reversal of that trend and are beginning to experience price increases for their lodging stay. In addition, rate increases are beginning to escalate. Based on the recently updated Winter 2005 forecasts of lodging industry performance prepared by Atlanta-based PKF Hospitality Research (PKF/HR) and Boston-based Torto Wheaton Research (TWR), room rates across the Top 50 hotel markets in the U.S. will increase by 3.7 percent in 2004, followed by another 4.7 percent bump in 2005. Stronger demand levels, combined with the increasing use of savvy price-setting practices by both hotel chains and individual property managers, are making hotel bargains harder to come by.
Outlook Varies Significantly Across Markets
The anticipated room rate increases in New York City of 13.7 percent in 2005 will lead the nation, noted R. Mark Woodworth, executive managing director of PKF Hospitality Research. Occupancy levels in New York City have broken through the 80 percent barrier this year, thus making rooms not only more expensive, but also harder to come by, noted John Fox, PKF Consulting’s practice leader in New York. Based on data compiled by Smith Travel Research, room rates for all chain-affiliated hotels in New York City increased by approximately 10.2 percent through the first nine months of 2004. By year-end, PKF/TWR forecasts hotel prices will end up 9.3 percent above their 2003 level. New York City occupancies will reach 82.6 percent this year and will climb to 84.0 percent in 2005.
As illustrated in the chart above, four of the Top Five growth markets for 2005 are coastal cities that function, to varying degrees, as financial and economic hubs on a national and/or regional basis. The bright outlook for Phoenix comes from a combination of strong business growth and continuing strength in leisure travel. The chart below lists the five highest average daily room rate hotel markets in 2005, based on the Winter 2005 Hotel Outlook prepared by PKF/TWR. The average room rate in the top 50 markets will top $100 for the first time since 2000.
Flat Prices Remain in Certain Markets
Not all hotel operators will be able to increase their prices in 2005. As indicated in the chart below, four of the nation’s Top 50 markets are forecast to experience slight declines in average room rates. In general, we expect the interior markets to continue to recover at a slower pace than the country as a whole, Woodworth noted. Travelers to Houston, Kansas City, Columbus, Long Island and Cleveland next year will see little change in prices.
An imbalance between the available supply of hotel rooms in these markets and the demand for these lodgings leaves the pricing power in the hands of the customer in these markets. It is interesting that the average occupancy level in these five markets for 2005 (61.4 percent) is well below the occupancy level forecast for the top 50 U.S. markets (66.6 percent), Woodworth said.
Where are the Bargains?
Not surprisingly, the nation’s more affordable hotels are generally located in smaller markets. However, travelers can still find relative bargains even in the bigger markets. If you are flexible with your travel plans, check with the hotel to find special seasonal, holiday, or daily discounts, Woodworth recommends. Hotels are more than happy to steer you towards the gaps in their calendar when occupancy is a little light and room rates are discounted.
Who Benefits?
While rising room rates are worrisome news for travelers, it is glad tidings for hotel owners and operators. Hotels are most profitable when room rates are able to grow above the pace of inflation, Woodworth said. From 2000 to 2003, U.S. hotel room rates have declined 6.4 percent. This has contributed to a 36 percent drop in hotel profits during the same period. Given the increases in room rates forecast for the next few years, we are expecting hotel profitability to once again begin to rise, Woodworth concludes.
Theodore is the Co-Founder and Managing Editor of TravelDailyNews Media Network; his responsibilities include business development and planning for TravelDailyNews long-term opportunities.
