Hotels Adding Guest Rooms at Breakneck Pace

Clearly, such robust numbers speak to the demand from both leisure and business travelers. But the hotel industry’s deep adoption of revenue management—using historical performance data plus local factors to set guest-room rates and as revenue targets for each department over given dates—is what has made RevPAR rise every single month for more than seven years.

To seize upon traveler demand, hotel companies have been adding guest rooms at a breakneck pace. Freitag notes that as of March 2017, the United States had 190,764 guest rooms under construction across 1,449 projects—that’s 24.4 percent more rooms than were under construction in March 2016. This has caused the overall occupancy rate to back off its recent all-time high, and is helping to keep estimated growth of room rates at just 2.8 percent for 2017.

But there’s a caveat to all this guest-room construction. “Of those new rooms, 64 percent are in the upscale and upper-midscale segments—that’s brands such as Courtyard by Marriott, Hyatt Place, Hilton Garden Inn and Holiday Inn Express,” Freitag notes. “Developers love them, banks love them and customers love them, so the major hotel companies love building them. But there’s not much meeting space there.”

The Multimillion-Dollar Question

So the multimillion-dollar question is this: Will the large amount of select-service hotel inventory that’s about to come on line actually help meeting planners as they choose and negotiate with properties to host their events?

It’s possible that some leisure and individual business travelers will opt to stay at select-service properties rather than full-service hotels—similar to an Airbnb effect—thus increasing the room inventory available at full-service meeting properties. On the other hand, the number of group rooms sold at full-service properties is now at an all-time high, and expected to grow at least 1 percent this year, too, Freitag says. As a result, there will still be compression in the top 25 markets on Tuesday, Wednesday and Thursday nights at meeting hotels, he adds.

The biggest players on the buyer’s side agree. “Although we will see room-supply growth exceed room-demand growth probably through the end of 2018, we’re still at the peak of the market,” says Greg Malark, chief operating officer for meetings-procurement firm HelmsBriscoe. “Hotels with quality meeting space still have multiple buyers over premium dates. So, we anticipate the continuation of the seller’s market until something changes on the demand side.” This could include a cutback in events due to an economic slowdown or negative world events.

But there’s no demand slowdown in sight. Fifty-two percent of planners responded to Meeting Professional International’s Spring 2017 Meetings Outlook with a “favorable” assessment of their budget allowance for the next year and another 28 percent said it will remain the same.

Some meeting groups could take advantage of the glut of new select-service hotel inventory. First, associations can bring these hotels into their room blocks to boost attendance by providing more price options.

“Having inventory across several price tiers is always a good thing,” Malark says, adding that on the other end of the spectrum, there’s a surprising number of meetings with only 20 or 25 attendees that need very little formal meeting space.

“These events can use the limited-service properties, and they especially like the idea of using new hotels. So, we’ve seen some business shift that way,” Malark adds.

As for mid-sized meetings that typically use one property’s guest rooms and meeting space, Freitag says that day-meeting facilities with no guest rooms are becoming more prevalent in large cities, providing a venue option that allows planners to use select-service properties within walking distance.

“[Overall], there is something brewing here that will impact the way we think about planning meetings going forward, because there are so few properties with ballrooms being built right now,” Freitag says.

Looking for Better Rates?

Both Malark and Freitag suggest being flexible to get better packages.

“More of our clients are willing to consider several destinations for each event, and that’s wise,” Malark says. “Particularly in cities where lots of supply is coming online in the near future, we see hoteliers willing to give a larger percentage of room inventory to the group segment, and accept group bookings farther out than before.”

Freitag says that hoteliers would love to be more certain about their future. “So, if a planner can elongate the booking window, that should be rewarded with a good rate,” he says.

Malark notes that rate is not the only important factor. “Right now, [hotel revenue managers] are staying pretty firm with audiovisual costs, food-and-beverage minimums, resort fees and other fees,” he says. “You must present the overall value of your meeting—but if your pattern helps the property in a need period, you’ll do better on the terms.”