Some good news in the meeting-buying environment may be on the horizon for planners. Construction will commence this year on more hotel rooms than in any year since 2000, boosting future supply and carrying the promise of holding down room-rate increases, according to a recent study by PricewaterhouseCoopers (PwC). Another plus for planners is that a disproportionately high number of groundbreakings are taking place within the higher-priced brands where most meetings are held, such as Marriott and Hilton.
However, there's a caveat to all of this: Demand, especially within the group segment, is growing faster in the short term than new supply can come on line. This will likely lead to a troublesome situation: Supply growth won't keep pace with groups' current needs, says Bjorn Hanson, global hospitality industry leader at PwC.
"The good news is that much of the construction is in areas of interest to meeting planners," he says. "The bad news is that meetings demand is growing faster than overall demand. And though supply will grow by about 1.3 percent within the next year, meeting demand will increase by two to three times that amount. Planners who can schedule meetings in shoulder or off-peak seasons will have more choices and flexibility in some markets." In fact, while hotels always look for groups to plug up the holes in their calendar, a group that can meet this need at hotels will be at an even greater advantage than in the past, Hanson says.
Room starts will rise 21.5 percent, to 98,000 rooms, this year, according to the PwC study. Upscale and luxury hotels comprise 22.5 percent of current room supply but 30.5 percent of the hotels starting construction this year. Ironically, a sharp spike in demand from all segments fueled the growth spurt in supply. Through March, occupancy averaged 58.4 percent while the March 2004 number was 56.8 percent, according to Smith Travel Research. The analysis firm expects the annual occupancy rate nationwide to hit 63 percent this year. The low point was in 2002, when 12-month occupancy was just 58.9 percent.
Individual room rates, which play a role in the determination of negotiated group rates, jumped by a noteworthy 4.2 percent this year. That brings the average daily rate to $90.28 from $86.64. Hotels will surely try to ride this wave via tougher negotiating for the foreseeable future, as there is now considerable money to be made. Need more proof? Revenue per available room skyrocketed by 7.2 percent this year, up to $52.74 from $49.21.