Corporate Hotel Rate Negotiations for 2011 - Preliminary Outlook

Most corporate and contract rates are negotiated during September through December, but based upon preliminary discussions, it is clear that there are very different buyer and seller expectations. Corporate and contract rates represent almost 20 percent of occupied room nights and almost 30 percent of U.S. lodging industry revenue.

The difference between buyer and seller expectations for corporate and contract rates for 2012 is as far apart as ever before – even more than last year.

For 2011, the average negotiated rate increased approximately 4.5 percent, which is greater than what will be achieved by U.S. hotels based on year-to-date performance of 3.5 to 4.0 percent.

The emerging hotel executive consensus outlook for 2012 is for corporate contract rates to increase by a national average of 6.0 to 8.0 percent or more, but many corporate travel managers are planning for increases of 3.0 to 5.0 percent.

A preliminary estimate for the result of negotiations is for an average increase for corporate rates around 5.0 to 6.0 percent depending on location and the number of room nights for a specific buyer. New York, for example is likely to be a location with a larger increase. Hotel executives also are seeking to charge separately for some services and amenities as they had in the past, in addition to implementing rate increases. In recent years, some contract rates included services and amenities such as waiving charges for telephone access charges, fax charges (which can be difficult for some hotels with business centers operated by lessees and would require hotels to pay for the service for guests), fitness centers, breakfast, local transportation, and others.

One response of buyers to higher rates is to reallocate the portfolio of contract rate hotels to include more upscale, select service and limited service hotels in place of luxury and upper upscale hotels, for example.

These estimates are based on selected interviews with industry executives and corporate travel executives, analysis of industry financial data, press releases, and information available on hotel and brand websites.

About the Author
Bjorn Hanson, Ph.D., divisional dean, clinical professor, and HVS Chair of the hospitality and tourism management program at the NYU-SCPS Preston Robert Tisch Center for Hospitality, Tourism, and Sports Management, is a hospitality and travel researcher, widely respected for his industry forecasts and for having created econometric models that transformed business analysis in the field. Prior to joining NYU-SCPS, he held the position of global industry leader, hospitality and leisure, at PricewaterhouseCoopers LLP.