Corporate Hotel Rate Negotiations 2017: A Change in the Balance of Power from Sellers to Buyers

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By Bjorn Hanson, PhD, Clinical Professor NYU School of Professional Studies. Jonathan M. Tisch Center for Hospitality and Tourism
5/10/2016

As the corporate and contract rate negotiation season is about to begin, the 2017 outlook is for a change in the balance of power from sellers to buyers.
Corporate and contract rate negotiations generally begin during September and continue into December. Corporate and contract rates represent almost 20 percent of occupied U.S. room nights and almost 30 percent of U.S. lodging industry revenue.

Following among the largest percent and dollar increases in corporate contract rates in decades of typically between 5.75 to 7 percent for 2016, the forecast for 2017 is for increases on 3.25 to 4.0 percent.  Overall average daily rate (ADR) for the U.S. lodging industry is expected to increase approximately 4.5 to 5.0 percent in 2016, with smaller increases for 2017 of 4.0 to 4.5 percent.

U.S. hotel occupancy in 2015, approximately 65.5 percent, was the highest since 1984 and consensus forecast for 2016 at the time of the negotiations was for occupancy to increase, so the balance of power in negotiations favored sellers. Actual occupancy will be slightly lower than occupancy in 2015.

There are four factors that will have the greatest effect to shift the balance of power from the sellers to the buyers:



CFOs and corporate managers are generally facing a challenging earnings environment, and many are attempting to control travel costs, especially for hotels, when these costs, including hotel room rates, are increasing at approximately double the rate of inflation.

The U.S. General Services Administration issued the increase “standard rate” of 2.25 percent effective October 1.

There are several practices to respond to average daily rate increases:


These 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.

 

 

About the Author
Bjorn Hanson, Ph.D., is a clinical professor with the NYU School of Professional Studies (NYUSPS) Jonathan M. Tisch Center for Hospitality and Tourism. He 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.  He has served as divisional dean of the School’s Preston Robert Tisch Center for Hospitality, Tourism, and Sport Management and as co-interim dean of the NYU School of Continuing and Professional Studies (now the School of Professional Studies). Prior to joining NYU, he held the position of global industry leader, hospitality and leisure, at PricewaterhouseCoopers LLP.