Tisch Center for Hospitality Predicts Buyers Market in 2017

The balance of power in hotel negotiations will shift from sellers to buyers in 2017, according to Bjorn Hanson, Ph.D., a clinical professor at the Jonathan M. Tisch Center for Hospitality and Tourism 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 2016, those rates -- which typically are negotiated between September and December -- saw the largest increase in decades, according to Hanson, who in his latest lodging industry forecast predicts that corporate and contract rates will continue to grow in 2017 -- albeit at much slower rates.

"Following among the largest percent and dollar increases in corporate contract rates in decades of typically between 5.75 to 7 percent for 2016, the forecast for 2017 is for increases on 3.25 to 4.0 percent," Hanson said. "Overall average daily rate (ADR) for the U.S. lodging industry is expected to increase approximately 4.5 to 5.0 percent in 2016, with smaller increases for 2017 of 4.0 to 4.5 percent."

Hanson attributes the coming buyers market to several factors. One is lower hotel occupancy, which he said will be high relative to long-term averages but lower than 2016 and 2015. Another is corporate travel managers and convention planners, many of who feel they overpaid in 2016 and will therefore seek to recover some of their lost funds in 2017. A third factor is the "member" and non-refundable rates published on hotels' websites, which increasingly are lower than corporate and contract rates. Finally is Airbnb, which is creating increased competition for corporate and convention business.

All of this means corporate travel buyers will likely enjoy more negotiating power in 2017.

Even so, rates are rising. In response, Hanson said, corporate travel managers who want to control their costs do so by reallocating 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, "CFOs and corporate managers are generally facing a challenging earnings environment, and many are attempting to control travel costs, especially for hotels, when these costs, including hotel room rates, are increasing at approximately double the rate of inflation."

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