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Corps. Face Scarce Space: Soaring Hotel Rates, Occupancy Drive Buyers To Secondary Cities
By Corrie Dosh
MARCH 06, 2006 --
Corporate meeting buyers, faced with the prospect of spending excessive amounts of time finding hotel space in major cities at a time when occupancy continues to soar and paying record-high rates, are moving more events to secondary and tertiary locations. Though rates in those cities are skyrocketing as well, they offer buyers at least some relief during the height or a powerful hotel seller's market.
Additionally, meeting buyers also can continue to expect the further implementation of hotel yield-management techniques, according to PricewaterhouseCoopers industry analysis. Commonly deployed yield-management strategies include higher rates for meeting and banquet room rentals—and the denial of such space without a requisite number of sleeping rooms—tighter cancellation and attrition clauses and increased attrition levels for food and beverage services. Chains reported $1.4 billion in revenue from various surcharges in 2005, according to PwC.
"There is some shifting from the top 10 markets to other markets," said Bjorn Hanson, head of PwC's hospitality and leisure practice. "That certainly is happening, but I'd say more what is happening is it's shifting from first-choice hotels to sometimes second- or third-choice hotels or shifting the week of the event. Changing cities is not the first choice of alternates, but maybe the second or third."
Buyers' most immediate challenge, however, is finding available space for meetings—which has been more of a trial than has been rising rates, said Julie Johnson, manager of events and incentives for Richardson, Texas-based Lennox Industries Inc., a subsidiary of heating and cooling equipment firm Lennox International Inc.
"It's busier now, definitely," Johnson said. "It's a little bit more competitive than it used to be." Lennox stages events in many different markets, both top-tier cities and secondary markets, she said. Having events midweek can help with availability, Lennox's Johnson said.
Though hotels in secondary markets generally charge lower rates and can have more flexible terms for corporate meetings contracts, occupancy is very tight because little new supply—or supply with appropriate meetings facilities—is entering those markets.
"In Pittsburgh, availability is difficult to come by because the hotels do such a transient business," said John McConahy, president of Pittsburgh-based meetings management firm Imagination Plus. "They only allocate 65 percent of their rooms for meetings business, if that. So, they're very difficult to negotiate with in their pricing for rooms and food and beverage. You go out of here to an area that's a little more repressed and negotiations are nice."
McConahy said in 2005 he moved some events to such secondary markets as San Diego, and also to Orlando, which has more supply and availability for corporate meetings business.
Though pricing and availability are tightening, McConahy said his clients are choosing to absorb the extra cost and time needed to plan the event, rather than move meetings to off-peak, midweek dates. "They're still following the same patterns," he said.
Since Golden, Colo.-based Coors Brewing Co. must use New York City for analyst meetings, the company has taken a hit from higher hotel rates, said Pamela Esker, strategic sourcing manager of external services for Coors. "Rates are exorbitant," Esker said. "One of our biggest challenges has been New York."
Since Coors already holds most of its New York meetings midweek, availability has been adequate but rates keep going up, she said. One strategy the company has used to mitigate rising costs is choosing alternative properties.
"We're having to pay right now, but I don't know if we'll continue with that," she said. "We're taking different levels of properties than we were before."
Though New York City has by far been the toughest market in which to hold meetings, with its double-digit percentage rate increases, Esker said she has seen higher hotel rates across many cities.
"I've seen overall rate increases of about 9 percent across the board," she said. "At least for us, and what our needs are."
In 2005, overall hotel occupancy rates reached 64.7 percent, according to PwC. In such top-tier markets as New York, Washington, D.C., and Los Angeles, the average occupancy is much higher and these cities are continuing to see growth in rates and occupancy, according to Ernst & Young's 2006 U.S. Lodging Report, issued in January. All major markets are expected to make significant increases in revenue per available room this year, according to Ernst & Young's report.
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