Buyers Face Tough Negotiations with Hotels

Higher-than-forecast occupancy in US cities is emboldening hotels to push rates up.

Traditionally high-occupancy cities in the United States expect to reach 2008 occupancy levels by the second quarter of 2011.

An increasing number of reports say that this is making them bolder when negotiating with buyers. Unlike regions such as southern Europe, for example, where economic uncertainty is softening rates, in the US negotiations over rates for 2011 are becoming longer.

Buyers are having to deal with 10-15% premiums on last-room availability in high-occupancy cities. Hotels in most cities are aiming to raise rates by 10-20%. As previously reported in TTG Nordic, New York hotels are being especially tough, targeting increases of up to 20%. Occupancy is rising fast. According to Carlson Wagonlit, San Francisco had a 59% occupancy rate in December 2009; in October 2010 it stood at 90%.

Chicago’s was at 45% at the end of 2009; in October it had reached 73%. Average occupancy in New York in October was 86%. “2010 has been a better year than anyone expected in January,” according to Smith Travel Research President Mark Lomanno. “Demand has been a pleasant surprise, and it really is the driver behind the kind of year we’ve experienced.”

To counter hotels’ demands, agents are at least trying to make sure they include extras in the price, such as Internet access, breakfast and health club access. Such extras are no longer automatically included as they were in the past. To keep rates at the lowest possible, some buyers are even opting to exclude these amenities. Availability problems are expected to occur into next year.

This is already forcing buyers to introduce rate caps if they have to negotiate with non-preferred properties. Other buyers are including permanent room allotments at hotels in high-occupancy cities so that the corporate client pays whether or not it uses the rooms. Generally, buyers are advised not to wait too long for a final deal.

Travel Management [photo: Fairmont Chicago from Navy Pier]