by Matt Alderton | October 05, 2015
Corporate and contract hotel rates negotiated this fall could see their largest increases in three decades, according to Bjorn Hanson, Ph.D., divisional dean for the Preston Robert Tisch Center for Hospitality, Tourism, and Sports Management at the New York University School of Continuing and Professional Studies (NYU-SCPS).

According to Hanson, corporate and contract rates at U.S. hotels represent almost 20 percent of occupied U.S. room nights and almost 30 percent of U.S. lodging industry revenue. In his latest lodging industry forecast, he predicts that those rates -- which typically are negotiated between September and December -- will rise 6.5 to 7.5 percent for 2016.

"This would be the largest increase since 2006 or 1987 depending on the final result," Hanson said. "This is a larger increase than the approximately 6.25 percent for 2015, which was the largest increase since 2006. Overall average daily rate (ADR) is expected to increase approximately 6 percent in 2015."

According to Hanson -- who noted that most contract rates no longer include services and amenities like Internet access and breakfast, for which hotels are charging separately -- there are several practices that corporate travel managers can leverage in response to rate increases. For instance, he said, buyers can reallocate their portfolios of contract rate hotels to include more upscale, select service, and limited service hotels in place of upper upscale hotels and full-service hotels. Or, corporate travel departments can allow travelers to select hotels that are not included in the portfolio of hotels with negotiated rates; that can be especially popular among younger travelers, he said, and can have the effect of lowering the overall average rate while increasing travel experience satisfaction.

Concluded Hanson, "Corporate management is attempting to control travel costs, especially for hotels, in an environment of increased business travel with hotel room rates increasing at approximately three times the rate of inflation."

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