Hogg Robinson releases Results from Comprehensive Hotel Industry Survey

Hogg Robinson Group's (HRG) six month hotel survey has found that the international hotel market is proving resilient amid tough economic conditions with most regions experiencing growth. The emerging economies have maintained their previous strength with Moscow, at 25% growth, once again topping the chart as the most expensive destination for corporate travellers, and Mumbai booming with an average rate increase of 37%.

Other trends noted by the international corporate travel services company include:

- All of the key European markets exhibited strong growth with Berlin achieving the highest rate rise of any city at 39% - rallied by an increase in demand in an under supplied market and assisted by an upsurge in exhibition and conference activity, particularly in the international film industry

- Abu Dhabi has entered the top 10 for the first time and, with an average rate growth of 23%, its rates now rival those of Dubai, reflecting the burgeoning economy in the Gulf

- Average rates in Eastern Europe and Asia Pacific grew by 22% and 20% respectively - demonstrating clear benefits from a continued focus on the luxury end of the market, combined with an ongoing shortage of supply as hotels struggle to keep pace with demand

- London has maintained growth, although at 2% it is slower than previous periods surveyed, resulting in the city dropping out of the top 10 to 16th place

- North America, where the dollar exchange rate has stayed relatively stable during the period, has stayed static with rates in New York remaining flat and marginal declines of 3% and 2% noted in Houston and San Francisco respectively

Margaret Bowler, Director Global Hotel Relations at HRG, said, "The hotel industry has continued to show an increase in hotel rates, albeit at a slower rate than we saw for the same period in 2007. However, as the market softens we can expect to see more hotels adopting sensible pricing in order to maintain current occupancy levels."

With sustained demand in certain cities, availability is an ongoing challenge. HRG's data shows that 36% of denied bookings are either due to a lack of a negotiated rate, or hotels choosing to 'close out' agreed rates in favour of more lucrative options. This highlights the need for businesses to secure a comprehensive and effective Hotel Rate Programme and emphasises the ever more important role of HRG in successfully securing competitive rates on behalf of clients.

The results show that corporates appear to be travelling smarter as they look to control travel costs and maximise their return on expenditure. A slight decline recorded in the average length of stay highlights this point, as business travellers look to reduce accommodation costs or where possible find alternatives to travel: one day meetings, video conferencing or reducing the frequency of trips.

This trend is further reflected by the growing number of companies travelling to emerging economies, as an increasing number of businesses transfer elements of their business to exploit lower operating overheads. These markets are expanding to meet demand. This is most evident in India, in particular the financial capital, Mumbai, where the banking, financial and IT sectors show no signs of slowing their operations; and cities such as Hyderabad are rapidly following suit. Demand in these cities continues to outstrip supply and the majority of investment at the top end of the market is supporting continued rate increases.

HRG's interim survey is based on a combination of industry intelligence, actual room nights booked and rates paid by its UK clients during January to June 2008 compared to the same period in 2007.

Top 10 Most Expensive Cities Worldwide: 2007 v 2008

Key European cities have continued to show consistent growth over the last six months. Once again Moscow has witnessed the highest average room rate achieving 25% growth, compared to 11% in 2007. This can largely be attributed to the dominance of five star hotels in the city and a lack of new hotels due to sustained high real estate values and restricted land availability.

The Gulf has similarly seen significant increases with Abu Dhabi entering the top 10 most expensive cities for the first time at eighth place. The limited supply of hotels, primarily dominating the top end of the market, combined with high demand and upgrades of existing hotels in the region, has forced prices upwards. This is further assisted by the historic perception of lower rates than its neighbour Dubai which, as a result of the overflow of demand, has moved from fourth to seventh place.

As the financial hub of India, Mumbai has benefited from sustained interest from the banking and financial sectors with hotel rates continuing to rise by a staggering 37%. Bangalore, however, experienced a softer increase of 3%. This was as a result of an oversupply of hotels and a move from companies to other cities within India offering a similarly experienced workforce and lower operating costs, pushing the city out of the top 10 to 14th position.

Following years of growth, London has moved out of the top 10 to 16th position due to the buoyancy of both the European and Asia Pacific markets. A solid supply of stock and steady demand has resulted in a more conservative average rate increase of 2%.

Top 10 Average Rate Rises/Decreases: January - June 2008

With demand continuing to outstrip supply, Europe has led the industry in rate increases over the last six months, assisted by a strong euro exchange rate.

In addition to a general increase in demand in Berlin, the substantial rise in volumes from the convention and exhibition sector have attributed to its 39% growth. This is also helped by the continuing undersupply of hotels and, with few recent openings hoteliers have been able to drive up average rates. 

Geneva has similarly benefited from a growth in demand, notably from the financial and banking sectors. Furthermore, there has been an increase in companies using non-eurozone countries such, as Geneva, for meetings with their lower exchange rate providing savings as businesses tighten control on travel expenditure.

While the UK market remains buoyant, the recent increase of budget and mid-market hotels has impacted on areas traditionally dominated by top end hotels. This is particularly the case in Manchester where historic growth has been driven by an expansion in the five star market.

The opening of Terminal 5 at Heathrow has prompted hoteliers to reassess their pricing strategy, with rates reduced by 3%, to maintain share of transient business and the events and meetings sector.

Quarterly Average Room Rates 2007 v 2008 in Local Currency

First quarter rates were noticeably higher with an average growth rate of 6.75% compared to 5.2% in the second quarter. The drop in the second quarter could be attributed to hotels not reacting quickly enough to market conditions and relying too heavily on pricing models originating from historical data in booking systems, in turn pricing rooms too high. HRG sees this balancing out in the second quarter.

The exception to this trend, showing double digit growth in both quarters, is Johannesburg. This can be attributed to increased demand and an undersupply of hotels. These rate increases are expected to continue through to the Rugby World Cup in 2010, with several hotels currently under construction in preparation for the increase of visitor numbers, after which it is accepted that demand will drop.

The strength of the euro continues to impact on companies travelling to Europe for business. While average rates have increased in local currency, this is amplified when paying in foreign currency. For example, while Amsterdam saw an overall average increase of 4.5%, for the UK corporate paying in GBP this increase jumps to 20%.

Average Room Rate Increases by Region: 2007 v 2008

There has been consistent growth across all regions over the last six months. Notably the highest regional increases were recorded in Eastern Europe, reflecting the continued strength of the Moscow hotel market and the ongoing investment in luxury hotels; and Asia Pacific with strong performances in Singapore, India, Japan and Australia leading to 20% regional growth.

North America is the first region to see rates start to level off, with larger decreases expected in the second half of the year as hotels increasingly open up corporate rates.

HRG's data showed significant shifts in travel patterns within the banking and finance sector. While still focused on the traditional financial hubs, the survey found the sector increasingly expanding into alternative markets with Dubai, Abu Dhabi, Moscow, Geneva and Indian cities of New Delhi, Bangalore, Hyderabad and Pune seeing a significant growth in demand from business travellers. With all of these cities facing a shortage of accommodation, and the majority of hotels at the top end of the market, this increased demand has continued to drive rates skywards leading to the substantial increases.

Analysis of Denied Bookings: 2007 v 2008

Business travellers continue to be affected by the lack of availability in key cities with the number of denied bookings increasing significantly in recent months. This can largely be attributed to the current strength in the market, with its sustained occupancy levels, which is further impacted by the lack of client negotiated rates in frequently visited locations.

More and more hotels are choosing to 'close-out' overly competitive client negotiated rates in order to maximise profits in cities in high demand. HRG advises clients to consider securing a higher negotiated rate that better reflects market demand in key cities in order to ensure availability at that negotiated rate that will deliver savings over the longer term.

As noted in HRG's 2007 annual hotel survey, hotels continue to capitalise on the current shortage of availability, with many, particularly in the US, introducing minimum stay restrictions; imposing early check out and cancellation fees to prevent travellers cancelling unwanted nights at the last minute.

Global Hotel Star Ratings: 2007 v 2008

With a 9.1% increase in average rates, the top end of the market continues to boom suggesting minimal impact of the current economic environment. Across Europe this has been assisted by traditional properties undergoing substantial refurbishments to maintain their five star status.

Major luxury brands have also expanded operations overseas particularly in the Eastern European, Asia Pacific and MEWA (Middle East and West Africa) regions, notably influencing the increase of rates in Moscow, China, Dubai and key commercial centres in India.

The introduction of new mid-market brands into key European cities has benefited the four star sector providing greater diversity and choice for the business traveller.

The budget sector continues to grow with new hotels increasingly opening in city centre locations despite competition from the retail sector for land development opportunities. However, HRG's data suggests that the three star market is increasingly becoming a threat to the budget sector with its greater flexibility in pricing enabling it to offer more competitive rates to suit the markets needs.

Summary

"As forecasted at the start of the year, in our 2007 annual hotel survey, the mid-year results have shown that the international hotel market continues to be resilient with most regions seeing an increase in average rates in the first half of 2008 as demand continues to outstrip supply," said Margaret Bowler.

"However, we are increasingly seeing rates level off in certain markets as they adjust pricing structures to meet market expectations. This has been noted in London where rate growth slowed significantly in the second quarter, and in New York where growth dropped from 6% to 0%. In this instance we expect to see a shift in pricing strategies as hotels streamline corporate packages and increasingly strip out extras with less hotels up-selling executive rooms, corporate packages or in-room bar pricing deals to make rates appear more attractive.

"In light of the current economic climate, and consistently high exchange rates, more businesses are looking at ways to control travel expenditure and are increasingly travelling smarter - completing one day meetings and utilising the services available in non-eurozone countries. We are also seeing clients who traditionally book five star hotels re-considering their travel policies and moving to four star hotels in order to maximise savings."

 "Looking ahead to the second half of 2008 we can expect to see high average rates maintained in cities where demand is strong and availability low, and in cities such as Moscow where the market is dominated by five star hotels. In cities experiencing a balancing-out of rates, it is likely that client  negotiated rates will become more widely available, with hotels wishing to secure business with companies that can guarantee a significant proportion of their travel spend," concluded Margaret Bowler.

See also: The World's Most Expensive Cities for Expatriates and other recent news regarding: Travel News Asia, Promotions, New Hotels, Hogg Robinson, Survey, Research, MasterIndex