Industry Update
Editorial Article29 August 2007

Hotel Room Rates Rise Globally | HRG Releases Top Ten Most Expensive Cities Worldwide

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Hogg Robinson Group (HRG)

HRG UK’s 2007 half year hotel survey has revealed continued growth and a strong average rate performance for the hotel industry worldwide. Moscow once again achieved the highest average room rates, alongside significant growth in the rapidly developing markets of Dubai and Mumbai.


Key findings include:

  • Moscow remains the most expensive city with average room rates of £236.06 compared with £220.57 in 2006
  • Mumbai again showed rapid growth, with an increase of 30% over the last six months following an uplift of 49% in average rates achieved for the full year 2006
  • Of the key European cities, Barcelona grew by 18%, rates in Berlin were up by 17% and Stockholm increased by 10% between January and June 2007
  • London continued to perform well with 5% rate growth in the first 6 months of 2007, compared to average rate growth of 7% in 2006
  • Of all the regions worldwide, only Africa noted a decline in average room rates

Margaret Bowler, Director Global Hotel Relations at HRG, commented: “The figures show average room rates are generally performing well and the global hotel industry has once again experienced healthy growth in the first six months of 2007.

“Europe has seen strong increases, and rates in the Middle East and Asia have also risen. As these two particular markets have yet to reach full maturity, we expect to see the trends continue over the foreseeable future. Indeed, as economic investment in each local economy increases, we may even see a significant increase in the pace of growth.”

She continued: “Another key finding of our latest survey is the ever-growing importance of booking in advance, particularly for travellers looking to secure the best rates. Last minute bookers are increasingly suffering from inflated rates in the most popular locations, and clients need to ensure that they have negotiated last room availability in their corporate rates to avoid this.”

In a period where the dollar exchange has been weak, key US commercial cities have also recorded increases, with average rates in New York up by 4% and Houston increasing by 8%.

All major European markets demonstrated varying degrees of average rate growth when compared to the same period in 2006, with the exception of Geneva, where average rates fell by 3%.

HRG UK’s survey is based upon a combination of industry figures, actual room nights booked and rates paid by its UK clients during January-June 2007 (inclusive) and is compared to data for the same period in 2006.

Part 1: Analysis

Top Ten Most Expensive Cities Worldwide

2007 Ranking CITY 2007 Average Room Rate GBP 2006 Average Room Rate GBP 2006 Ranking
1 MOSCOW £236.03 £220.57 1
2 NEW YORK CITY £180.29 £173.83 2
3 DUBAI £166.73 £155.56 7
4 PARIS £165.84 £158.01 3
5 BANGALORE £162.04 £174.56 -
6 MILAN £159.62 £152.91 4
7 STOCKHOM £156.44 £142.14 8
8 HONG KONG £153.86 £154.91 5
9 LONDON £152.20 £145.14 6
10 ROME £151.38 £143.33 10

As previously mentioned, Moscow has retained its position as the destination with the highest hotel rates for corporate travellers, with the price of the average room increasing by 7% compared with the same period from 2006.

In Europe, Paris retains its place in the top five most expensive destinations, slipping one place from its 2006 ranking with rates continuing to grow by 5%. London fell from the sixth to the ninth most expensive city despite also posting a steady 5% increase, reflecting the extent of growth in Europe.

Outside of Europe and North America, of the top ten, Hong Kong and Bangalore saw average room rates fall. Significantly, Bangalore witnessed room rates decrease by 7% as the economy experienced a slowdown due to a plateau in its growth as a base for corporate outsourcing and international call centres. With many companies having already moved their business to Bangalore, hotel industry rates are starting to settle to more sustainable figures.

Increases in average room rates by region in £Sterling

Regional variations

All regions except Africa have seen significant growth, led by Eastern Europe which saw rates increase by 18.7%, with Moscow being the main driver behind this growth. The Middle East and West Africa (MEWA) region recorded a 14% rise, spurred by the strong performance of Dubai and further investment in Abu Dhabi and Qatar. The UK saw a slight increase in average room rates, up 4.3% or £4.40 per night which reflects the similar steady trend set in 2006.

On the increase of Eastern European rates, Margaret Bowler said: “We have seen a solid increase in commerce between East and West over the past ten years and can see that demand is outstripping supply, pushing up room rates at a steady level.”

In Africa the lack of growth can be attributed to the GBP conversion rate against the ZAR (South African Rand). Room rates in GBP rose by 3% but when converted to the ZAR, rates rose by 30%, with the knock on effect of limiting local client bookings.

Saudi Arabia achieved significant increases in average room rates. The country remains a strong centre for trade as demonstrated by the 21.3% rise in rates in the country. Increased demand from foreign businesses looking to invest in the economy has led to a lack of hotel room space in the area, pushing up average rates.

Increases according to star ratings

Reflecting the continued growth in the global hotel industry, average rates have increased year on year across all star ratings. This continues the pattern which began in 2005, the first such evidence since the 2000/01 industry downturn. The most noticeable trend is the difference between budget and 3 star; and between 4 and 5 star hotel rooms.

Commenting on this trend, Margaret Bowler said: “It is particularly interesting to see such a gap between the budget and 3 star hotel sectors, given the convergence in the standard and number of facilities offered. This may be a result of the budget sector continuing to open in city centre locations, traditionally the domain of full service hotels.”

The largest average rate increase (5.5%) was experienced in the 4 star market, with the lowest (4.9%) in the 3 star sector as operators struggle to differentiate their product between a “no frills” and full service offering. Average rates in the 5 star sector continue to achieve growth (almost 5%) as a result of the major branded chains’ expansion into key overseas destinations.

Margaret Bowler continued: “We saw growth in each category of room from 2006 rates, most significantly in the 5 star sector as we had predicted after last year’s report. The same gradual growth in all categories of rooms is set to continue for the remainder of this year – again focusing on the upper end of the market where competition is fierce.”

Top 10 Highest Average Rates Increases in £Sterling

CITY 2007 Average Room Rate 6 Month Increase
MUMBAI £147.55 30%
BARCELONA £126.40 18%
BERLIN £83.05 17%
ABERDEEN £119.75 12%
SINGAPORE £105.86 12%
STOCKHOLM £156.44 10%
MUNICH £109.22 9%
GLASGOW £92.12 8%
HOUSTON £72.51 8%
DUBAI £166.73 7%

Average Rates Increases in £Sterling

Mumbai is once again the city with the largest rise in average room rates. Rising rates have been fuelled by a limited supply of hotels with rooms in the upper end of the market to meet the demand from the expansion in the Banking, Finance and IT sectors. With India’s “open skies” policy and an expansion in capacity at Mumbai’s International Airport, the city has been exposed to increased traffic into the region and as a result average rates have increased significantly.

Rates in Dubai again are on the rise, even though there has been massive new investment in the opening of hotel developments. The country is now a major focus for the inbound leisure market, which impacts the number of rooms available for the corporate market, and with demand outstripping supply the growth in average rates looks set to continue for the foreseeable future.

Global Average Booking Lead-in Time

The lack of availability in key destinations continues to be an issue in the current strong market and the evidence suggests that corporate travellers remain unable to significantly change their booking patterns and timescales. In the first six months of 2007 almost 10% of all bookings were made on the day of arrival, a marginal increase on the same period in 2006 (9%).

The majority of bookings (28.8%) are continuing to be made between four to seven days prior to arrival, which increases the risk of clients paying rates higher than those contracted or having to upgrade to superior room types – resulting in a significant cost to the traveller. High levels of occupancy tend to lead to hoteliers closing out client specific negotiated rates to achieve greater yield, except where allocations have been put in place or rooms have been pre-purchased.

Denied Business

As a consequence of customers continuing to leave bookings to the last minute, 28% of all bookings were ‘denied’ during the six months to June 2007.

The category which displays the data for “no client rates on GDS” highlights the need for clients to secure a comprehensive and effective Hotel Rate Programme. Denied bookings under this category are due to clients either not having negotiated rates for particular locations, last room availability not being included within the negotiated rates, or not being honoured by hotels. In the worst scenario, client rates have not been loaded onto the GDS (Global Distribution Systems) and are therefore not accessible at the point of booking. Reservations denied under this category represent almost 37% of all denied bookings.

The data would suggest that hotels are not delivering agreed client rates, preferring to accept business at higher rates. This is particularly be the case in cities where demand is high, and where corporates have negotiated what appear to be highly competitive rates without last room availability based on expected large volumes of bookings in the belief this will drive down costs.

Bookings denied due to their lack of availability on the GDS, which reached 30%, demonstrates the current strength of the hotel industry as seen in both increased occupancy and average room rates globally.

Focus country average room rates: United States

CITY Average Rate January to June 2007 GBP Average Rate January to June 2007 US$ Average Rate January to June 2006 GBP Average Rate January to June 2006 US$ GBP Variance US $ Variance
BOSTON £127.29 $250.75 £135.42 $242.37 -6% 3%
CHICAGO £123.44 $243.17 £125.53 $224.66 -2% 8%
DENVER £82.95 $163.41 £83.00 $148.54 0% 10%
HOUSTON £72.51 $142.84 £67.36 $120.56 8% 18%
LAS VEGAS £137.14 $270.17 £130.23 $233.08 5% 16%
LOS ANGELES £128.51 $253.15 £130.91 $234.30 -2% 8%
NEW YORK CITY £180.29 $355.16 £173.83 $311.10 4% 14%
PHILADELPHIA £87.51 $172.40 £94.70 $169.49 -8% 2%
SAN FRANCISCO £137.59 $271.04 £138.46 $247.80 -1% 9%
WASHINGTON £155.09 $305.52 £159.88 $286.14 -3% 7%
USA COUNTRY TOTAL £109.10 $214.92 £104.88 $187.71 4% 15%

The recent weakness of the US dollar has had an impact on hotel rates across America. Commenting on the effects of the currency fluctuation, Margaret Bowler said: “We can see the potentially beneficial effect of a weakening dollar exchange rate on average GBP rates paid by UK corporate travellers, as compared to the increased rates paid by US travellers.

“This has contributed in particular to New York and Houston continuing to enjoy high occupancy and increasing average room rates. Both cities are centred around the Oil and Banking & Finance communities which rely heavily on the corporate travel of employees and customers.”

USD $ Exchange Rate Variance v GBP £ & USD $ Average Rate Variance

Despite a weakening dollar exchange rate since the second quarter of 2006 there have been considerable fluctuations of both dollar and pound average rates, highlighting the strength of the US hotel market during periods of peak corporate demand. This would suggest that average rate movements are not wholly determined by the variance of exchange rate changes but this is an important contributing factor.

Focus City Average Room Rate Comparison: New York and London

CITY Q1 2006 Average Rate Q1 2007 Average Rate Q1 Variance Q2 2006 Average Rate Q2 2007 Average Rate Q2 Variance
LONDON £142.14 £148.65 5% £148.26 £155.95 5%
NEW YORK CITY $287.83 $323.25 12% $334.10 $386.35 16%

Rates in London have continued to grow steadily, although experiencing a temporary downturn at the end of 2006 and beginning of 2007. However, the growth and fluctuation in average rates seen in New York has been significantly sharper. With increasing demand and limited new openings, hoteliers have experienced a rapid rise in average rates despite the traditional decline towards the end of the fourth quarter in previous years.

Comparing New York and London, Margaret Bowler commented: “Both cities are key commercial centres and as we can see from the results, the impact of the fluctuating exchange rate has had a dramatic effect on the periods of growth. The two key cities in the UK and the United States have mirrored the performance of the countries as a whole, reinforcing how important each city is to its home country.”

Focus country average room rates: UK

With the exception of Liverpool, which may have been adversely affected by a number of recent new openings ahead of the city becoming The European Capital of Culture in 2008, all key provincial UK cities have recorded flat or increasing average room rates. Rates in Leeds have remained flat year on year as the city struggles with an over supply of hotel rooms coupled with a decrease in corporate activity.

CITY 2007 Average Room Rate 2006 Average Room Rate Var.
LONDON £152.20 £145.14 5%
EDINBURGH £98.45 £93.74 5%
BIRMINGHAM £94.47 £88.32 7%
MANCHESTER £105.43 £104.57 1%
LEEDS £88.01 £87.79 0%
GLASGOW £92.12 £85.51 8%
BRISTOL £101.60 £101.05 1%
HEATHROW AIRPORT £107.56 £102.12 5%
LIVERPOOL £91.15 £94.09 -3%
CARDIFF £84.64 £84.29 0%
NEWCASTLE UPON TYNE £101.17 £98.32 3%
BELFAST £105.63 £99.29 6%

Glasgow posted the highest percentage variance, up 8% on 2006 figures whilst Birmingham recorded the second highest rate increase. Margaret Bowler explained: “We are seeing more business growth in regional UK cities as the spiralling cost of real estate in London has led to companies working from centres outside of the traditional London locations.”

Part 2: Summary

Margaret Bowler concluded: “The results of our latest half year survey are very positive and it has been particularly encouraging to see the pace of growth in Eastern Europe and the Middle East. On the basis of the data we have collected for this survey, and the trends we have identified following previous surveys, we predict this pattern will be repeated for the remainder of 2007 and into 2008.

“In Eastern Europe we have seen the largest growth in average room rates spearheaded by the continued growth in Moscow. Increasingly the Russian capital is becoming a key centre for commerce and the pace of growth in hotel rates is a testament to this. As more Russian companies look abroad for business, and with an increasing number listing on the London Stock Exchange, there appears to be plenty more scope for growth in the market.

“In the UK regional cities generally continued the strong performance of last year. Glasgow and Birmingham capitalised on the increased flow of traffic resulting in a healthy growth in average room rates. A previously steady increase in rates for London dipped slightly from last year to 5%, but this is marginal enough not to raise concern for its performance in the second half of 2007.”

“Overall the results show the health of the hotel sector continues to be strong, and once again underline the increasing need for companies to push hard to negotiate the best possible rates.”

Hogg Robinson Group (HRG) is the award-winning international corporate services company. Founded in 1845, HRG has over 60 years specific corporate travel expertise. Its corporate services interests include wholly-owned or majority controlled corporate travel operations in 25 of the key driver and growth markets throughout Asia Pacific, Europe and North America. Supported by contracted partners, the HRG worldwide network extends to nearly 100 countries.

Totally committed to a value offering for clients, HRG offers a comprehensive range of corporate services which in addition to Corporate Travel Management includes Consulting, Expense Management, Events & Meetings Management and Sports.

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