Forecast: Negotiated Corporate Hotel Rates to Rise in 2014

Everyone agrees: Next year will be a seller’s market for hotels. Just how much the market will favor them, however, is a matter of debate, 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).

In his latest lodging industry forecast, Hanson tackles the subject of corporate and contract rates at U.S. hotels, which represent almost 20 percent of occupied U.S. room nights and almost 30 percent of U.S. lodging industry revenue. Although buyers and sellers agree that rates will go up in 2014, he says they disagree about how much.

“It appears the difference between buyer and seller expectations for corporate and contract rates for 2014 is large,” Hanson says. “The emerging seller outlook for 2014 is for corporate contract rates to increase by a national average of 6.5 to 7.5 percent or more, but many corporate travel managers are planning for increases of 4.0 to 5.0 percent.”

Hanson expects the real number to be somewhere in between: His preliminary estimate for the result of negotiations is for an average increase for corporate and contract rates of 5 to 6 percent, depending on location and the number of room nights for a specific buyer. For 2013, he points out, the average negotiated rate (ADR) increased approximately 5.0 percent, compared with the overall ADR increase for U.S. hotels of about 4.5 percent.

“A trend that is continuing is for buyers to reallocate the portfolio of contract rate hotels to include more upscale, select-service and limited-service hotels in place of luxury and upper upscale hotels,” observes Hanson. “Another emerging trend is for corporate travel managers, some of whom are finding that negotiated rates are not especially sensitive to changes in the number of occupied rooms committed, is to allow corporate travelers to select hotels that are not included in the portfolio of hotels with negotiated rates. This can be especially popular among younger travelers and can have the effect of lowering the overall average rate paid by the corporation.”

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