courtesy Linchris Hotel Corp.
Published September 08, 2018
For group leaders navigating the lava-hot hotel landscape, there’s good news and bad news. The bad news is that demand is high and supply is tight, meaning higher rates and tighter availability for groups. The good news is that group leaders still have some wiggle room if they’re flexible on seasons and dates, or if they’re willing to stay in the suburbs of big markets or on the outskirts of popular districts. And, if groups are happy with solid, midlevel brands, those types of hotels are popping up all over the place.
Supply and Demand
The U.S. hotel industry, on a 12-month average basis through June, has had more rooms available than ever; has sold more rooms than ever; has seen the highest room revenue ever generated; and has had the highest occupancy rate ever, the highest average daily rate and the highest RevPAR, or revenue per available room, a performance metric used by the hotel industry.
“All key performance indicators are higher than ever,” said Jan Freitag, senior vice president, lodging insights, for STR, which provides global industry data benchmarking, analytics and marketplace insights. “Revenue per available room has grown 100 months in a row now, which is unprecedented.”
Healthy gross domestic product growth and the fact “that the American economy is doing really well” is driving the healthy demand, he said. Also, the unemployment rate is at an all-time low, “so people are traveling on their own money, and they know they’re going to have a job tomorrow, so that can help them plan their travel,” Freitag said.
On the supply side, the story is a little different. Though there are a lot of cranes in the air, and it may seem like new hotels are popping up on every corner, “there isn’t a ton of development going on,” he said.
In June, the number of rooms under construction was 186,000, which may sound like a lot, but that number has declined year over year for six months in a row and is still 25,000 rooms fewer than the peak in 2007.
“Demand growth is outpacing supply growth, so if you have a healthy demand environment and very limited new supply, that means, mathematically, the occupancy for all hotels and room demand is up.”
Groups in a Squeeze
High demand and tight supply mean higher rates and tighter availability for groups.
Though STR does collect some data about the group market, it comes from luxury and upscale hotels and doesn’t distinguish between leisure groups and meeting groups. However, through June, STR’s data show that group room demand has been healthy for the first six months of 2018 and is up from last year, “a welcome change,” Freitag said, especially considering how soft it had been the past couple of years. And hoteliers expect that trend to continue in the near future, at least for a couple of quarters.
“Transient demand has been very, very strong, so hotels don’t really need the groups — but that’s very shortsighted, of course,” he said.
Several years ago, group leaders could book in a quarter of the year for a stay in the same quarter, but that’s no longer the case. With such high occupancy, hotels don’t need groups tomorrow; they need groups to “book way out in advance,” he said.
“The booking windows are elongating,” Freitag said. “Group managers are going to have to look out further — six, nine, 12, 24 months — depending on the group.”
Hoteliers once used groups to give them a healthy base to shore up transient room rates, but “everything is getting more expensive, so group rooms are getting more expensive,” he said.