Space, Price Crunch Hits Region

While the South largely remains a traditional value destination, the rising tide of travel is lifting hotel rates nearly across the board and making availability tougher in many destinations.

As expected, hotels are targeting the highest-paying customers, which means that government and association groups that enjoyed a step-up in lodging a couple of years ago are returning to more modest digs or less desirable dates.

"You're seeing the general displacement of association groups to lower-tier facilities" in the South, said Scott Smith, vice president of PKF Consulting, the Atlanta-based hospitality advisory firm. "They're being displaced by corporate transient and corporate groups."

Government groups, which must pay per diem rates that typically are less than the rates corporations pay, are the most affected, said Smith, along with SMERF (social, military, educational, religious and fraternal) groups and their budget-minded attendees.

"Everyone is taking the opportunity to upsell their own market," said David Scypinski, senior vice president of industry relations for Starwood Hotels, of Southern hotel markets. "The cheapest-priced groups are going to have the hardest time finding space."

Business is so good that hotels are buying out of their contracts those lower-paying association groups that booked a few years ago, when the hotels were desperate for business. The hotels are replacing them with corporate groups booking on short notice, Scypinski noted.

"If you're a SMERF group, and a blue-chip group is coming in over the same dates, there's going to be some drama," he said.

Hotels are also refusing to release additional rooms at lower, negotiated rates when groups fill their blocks (on the plus side, attrition has faded as an issue), and they're demanding more food-and-beverage minimums.

"Hotels are now doing what they did in the 1990s (when business was booming)," said Scypinski, of Southern facilities. "They're enforcing cut-off dates and not giving extra rooms; they're being clinical in holding customers to contracts."

Valued Customers

Corporate groups are especially valued customers for Southern hotels now that they're paying more.

"We're not seeing the great deals anymore," said Bill Briscoe, chief industry relations officer for Helms-Briscoe, one of the country's largest site-selection companies.

With occupancies up, corporate groups also must book further in advance than previously.

"You have to book about twice as far out as two years ago," Briscoe said.

Miami's South Beach and New Orleans are hot destinations among first-tier cities, as is Myrtle Beach, S.C., among smaller cities, according to HelmsBriscoe sales associates, while Atlanta, Dallas, and Jacksonville, Fla., are mentioned as cities where groups can find value.

Associations look to a destination's cultural and entertainment offerings to draw more attendees, but so, too, do corporate groups.

Microsoft, for example, is hosting a meeting of about 10,000 people next summer in New Orleans.

While New Orleans remains a prime convention destination, the city has won much more corporate group business over the past few years, according to Kitty Ratcliffe, executive vice president of the New Orleans Convention & Visitors Bureau. The mix of corporate groups is now up to about 40 percent of the total group market, she said.

Ratcliffe attributed the increased corporate group business in part to the relatively new supply of upscale hotels. The city has added a Loews, two Renaissance properties, and just last month a 320-room Marriott across the street from the convention center.

New Orleans was also primed to take advantage of the return of corporate meetings because, as a major leisure destination, city hotels tend to fill on weekends rather than mid-week.

"Corporate groups can do very well on rates mid-week," said Ratcliffe. "That has contributed a lot to our growth as a corporate meetings destinations."

The ADR in New Orleans rose 2 percent in the first quarter compared with first-quarter 2004, to $122.21, with an occupancy rise of 8 percent, to 70.7 percent.

PKF's Keeling said some of New Orleans' success comes from an expanding entertainment infrastructure rather than a reliance on the French Quarter. He pointed to restaurants and art galleries in the warehouse district and a planned expansion of the National D-Day Museum.

Hidden Gem

Houston, Keeling said, has also invested in its downtown infrastructure, some $3 billion for, among other facilities, a baseball stadium, which in turn has spawned restaurants and nightclubs. The redevelopment also included an expansion to the George R. Brown Convention Center, which now contains more than one million square feet of exhibit, meeting, and function space.

Houston is no longer the drab city that many people think it is, according to Keeling.

"There's a lot to do in the downtown area," he said, adding, "The restaurants are on a par with Chicago and San Francisco."

The entertainment infrastructure, combined with an increase in room inventory over the past couple of years, including the 1,200-room Hilton Americas, makes Houston a hidden gem for groups, Keeling contended.

"Planners can get good deals downtown," said Keeling. "There are four, 1,000-room hotels that rely on in-house meetings."

During the first quarter, the ADR in Houston was $78.53, a drop of more than 8 percent over first-quarter 2004, and the occupancy was 60.8 percent, a 1 percent increase, according to PKF.

One natural phenomenon that plagues the South more than other regions is hurricanes. But that has proved to be no obstacle to the meetings business. Planners have shown little fear of bringing groups to Florida, where four major hurricanes lashed the state last year, creating one of the worst hurricane seasons on record.

"We're not seeing significant push-back," said Bill Peeper, chief executive of the Orlando/Orange County Convention and Visitors Bureau.

One group moved its meeting from August to the milder month of June this year — the hurricane season officially begins June 1, and runs through November —but otherwise groups see little threat from hurricanes for a couple of different reasons, he said.

First, Orlando is located about 60 miles from either of Florida's coast, so by the time a hurricane has passed over that much land it usually has turned into a short-lived tropical storm. Second, the core of the greatest hurricane activity is mid-August through mid-October, and the convention season in Orlando begins in October, so there is only about two weeks of overlap.

A recent survey of area hotels showed that third-quarter occupancies will reach or exceed third-quarter levels of last year, said Peeper. And Orlando enjoyed a particularly good third quarter in 2004, he said, because the hurricanes forced people living on the coasts to seek shelter at inland hotels.

"We feel very comfortable about this third quarter," said Peeper.

Contact Marshall Krantz at [email protected]