"We've reached $400-a-night room rates in New York City and we're sick of it," says Maureen Karon, manager of meetings for Office Inc. in Manhattan. She echoes the frustration of meeting executives everywhere who have struggled with the hotel industry's strong seller's market over the past few years. But is relief finally in sight?
Experts say that it is--in some markets. Hotel occupancy rates for both 1998 and 1999 are on the decline. PKF Consulting in San Francisco projects last year's national occupancy rate of 73.9 percent for major U.S. cities will have fallen to 72.8 percent in 1998 and 72.3 percent in 1999. Smith Travel Research of Hendersonville, Tenn. forecasts an occupancy rate drop from 64.5 percent in 1997 to 63.9 percent in 1998 and 63.1 percent in 1999.
But unlike the hotel industry's across-the-board decline of the late 1980s, any softening this time around will be a market-by-market affair. "I've been able to reign in runaway prices for some meetings because space is not as tight this year as last year," comments Karon. "I've found good value in cities like Tampa and Salt Lake City."
According to PKF, the greatest occupancy declines are expected in Philadelphia, down by 3 percent; Colorado Springs, by 2.2 percent; Dallas/Ft. Worth, by 2 percent; Austin, by 1.8 percent; and Orlando, Nashville, and Salt Lake City, each down by 1.5 percent. On the other hand, some markets--including Boston, San Diego, San Antonio, and Waikiki--will experience occupancy gains of about one percent.
Although Orlando was one of PKF's occupancy losers for 1999, the city remains a "strong, aggressive market," contends William Peeper, president of the Orlando/Orange County Convention & Visitors Bureau. "We're not seeing anything to indicate a major slow-down."
Boston, albeit one of the strongest hotel markets, may be an easier target for corporate meetings in 1999, notes Leslie Hogan, senior vice president of sales and marketing for the Greater Boston Convention & Visitors Bureau. There will be 889 new hotel rooms opened by the end of 1998 and another 905 by the end of 1999, she says. In addition, Boston hoteliers have seen a decline in the number of high-paying transient hotel guests and are looking for more group business to fill the gap.
"Most of the softening we're projecting in certain markets is the result of new supply," says Robert Mandelbaum, director of research for PKF. This can put pressure on hotels to lower prices, but meeting executives shouldn't expect bargains. "In the past, discounting was a knee-jerk reaction to new competition," says Mandelbaum. "Today, hoteliers are holding rates."
"There is indeed the suspicion that hotel rates have reached their glass ceiling," comments Ed Griffin, president/CEO of Meeting Professionals International--although he doesn't think rates will come down as fast as they rose.
Stephen Clark, assistant vice president of conference and travel services for Madison, Wis.based CUNA Mutual Insurance Co., isn't experiencing any easing of room rates or availability. Clark is currently planning eight meetings for 1999. "I've had to check multiple locations in each city we're going to. Baltimore and the Detroit suburbs were relatively easy, but San Diego and San Antonio were a real challenge."
And escalating rates continue to be a major concern, Clark adds. "I have a prospective hotel contract that asks for rate increases of five to eight percent a year," he says. "If this keeps up, I won't be surprised if corporations don't take another look at the number of meetings they're holding."
Rate increases may actually boomerang in selected markets, adds Office Inc.'s Karon. "Companies will go someplace else because the hotels aren't worth what they're charging. Then we'll see a softening."