Corporate Hotel Rate Negotiations for 2018 Forecast – Both Buyers and Sellers Have Positions of Strength

October 5, 2017

By Bjorn Hanson, PhD, Clinical Professor
NYU School of Professional Studies
Jonathan M. Tisch Center for Hospitality and Tourism

As the corporate and contract rate negotiation season is about to begin, the outlook for corporate rates is for sides to negotiate with positions of strength.

The sellers’ position of strength is based on the highest occupancy percent for the US since 1984 - 65.5 percent for 2017 (about the same as it was for 2016).

The buyers’ position of strength is based on slowing US hotel room rate growth (approximate 3.0 percent in 2016 and between 2.0 and 2.5 percent in 2017) and increased use of alternative lodging, specifically “sharing economy” brands.

Corporate and contract rate negotiations generally begin during September and continue into December.  Corporate and contract rates represent almost 20 percent of occupied US room nights and almost 30 percent of US lodging industry revenue.

Following among the largest percent and dollar increases in corporate contract rates in decades of generally between 5.75 to 7.0 percent for 2016, 3.0 to 4.0 percent for 2017, the forecast for 2018 rates is for an increase of typically 2.0 to 3.5 percent.

Overall average daily rate (ADR) for the US lodging industry is expected to increase 2.0 to 2.5 percent and about the same for 2018.

There are a few factors that will effect negotiations this year for 2018 rates:

1. Negotiations for corporate rate increases in 2016 and 2017 were at times when there were expectations for larger rate increases than actually occurred; many corporate travel managers and convention planners believe they have been overpaying in recent years and will seek to recover some of those higher rates.
    
2. Some corporate travel managers and convention planners have been concerned with published “member rates” and non-refundable rates available on brand web sites because they can be lower than the corporate, contract, or convention rates, which are expected to be lower than rates available to the public. These published rates are part of major and long term initiatives to respond to the power of and commissions earned by online travel agents (OTAs).
    
3. Airbnb, which had not generally been embraced by corporate travel managers and convention planners, now has business relationships with American Express Business Travel, BCD Travel, Carlson Wagonlit Travel, and others.  Also, Airbnb has its Airbnb for Business and Business Travel Ready programs, and Airbnb’s Head of Global Hospitality & Strategy Chip Connelly has made public comments about Airbnb’s focus on group and convention demand. Other “sharing economy” brands have been acquired by traditional lodging organizations, further establishing these concepts as “legitimate.”
    

There are several practices buyers pursue to respond to increasing hotel room rates:

• Concentrating hotel use into a smaller number of hotels to increase bargaining power.
   
• Including more upscale, select service, and limited service hotels in addition to or in place of upper upscale hotels and full service and luxury hotels.
   
• Allowing travelers to select hotels that are not included in the portfolio of hotels with negotiated rates. This can be especially popular among younger travelers and can have the effect of lowering the overall average rate paid while increasing employee travel experience satisfaction. 
   
• Enforcing corporate travel policies and auditing of employee expense reports and hotel compliance with travel policy.
   

Estimates included in this report 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.