Strong Demand Likely to Force Hotel Prices Higher Next Year

October 3rd, 2022 at 5:55 AM EDT

Skift Take

A newly released report suggests that 2023 room rates will rise, often in double digits, in 25 major cities worldwide. This is unwelcome news to business event budgets already ravaged by inflation.

A confluence of macroeconomic factors — inflation, steeper labor costs, and rising interest rates — coupled with a sharp increase in demand will likely have a decisive upward effect on hotel prices for 2023. That was one of the main findings in the Hotel Prices 2023 report by American Express Global Business Travel’s Global Business Consulting group.

With the exception of Buenos Aires, which is facing skyrocketing inflation (and a predicted 30 percent leap in prices), the forecast for most major cities is for rate hikes of between 7 and 10 percent from current values.

The price pressure was universal across the 150 cities surveyed by GBT’s data analytics team, said Julie Avenel, Vice President, Amex GBT Global Business Consulting. “It’s most intense in those cities where very strong demand from the leisure segment is coupled with a rebound in both corporate travel and meetings and events,” she said.

The top 25 cities were examined in detail in the report, whose forecasts are based on data modeling using historic transaction information adjusted for inflation and other macroeconomic factors.  

A Peek at the Data

The Americas and Europe are forecast to see the most significant upward moves. Hot spots include Paris (10 percent), Stockholm (9 percent), Dublin (8.5 percent) and New York City (8.2 percent) — all cities with supply constraints of some kind or another and strong appeal for both business and leisure travelers.

Price increase predictions for Asia Pacific are markedly lower, with Melbourne and Hong Kong prices expected to rise only 1.2 percent and 1.3 percent, respectively. Of all the 25 cities analyzed in the report, the smallest increase (0.9 percent) is projected for Tel Aviv, which has a strong hotel construction pipeline.

Other key findings:

  • Non-Last Room Available (NLRA) is rising as a proportion of bids as hotels try to increase revenues after two years of declines during the pandemic.
  • Corporate travel managers and event planners report difficulties securing accommodation where and when needed.
  • Hotels are taking longer than usual to respond to buyer requests for proposals (RFPs).
  • The small meetings segment is recovering faster than larger events. With more people working from home, companies are looking for ways for colleagues from across the organization to collaborate in person, Avenel said. “We also are seeing a trend toward more training meetings,” she added.

Planner Strategies

It’s clear that the bargaining power and site flexibility that planners had during the pandemic has evaporated, but there are ways to manage, Avenel continued. 

  • When negotiating, come prepared with metrics. “When you begin rate discussions, it’s very important to be able to provide an accurate picture of demand,” she said. “That is especially important for smaller groups. It’s not impossible to secure a room block of under 100 rooms, but you will need to bring more facts and figures to the table.”
  • Be open to multiple rate types, including public rates and third-party rates. Re-shop technology may also help mitigate rising costs.
  • Be strategic about site selection. The cities that opened up first after travel restrictions were lifted show more price stability in 2023 than those that are just now seeing a surge in demand, Avenel said. Planners may have more bargaining power in places like Mexico City and Hong Kong, which are still well below pre-pandemic travel volume. Also, the type of meeting factors into site suitability, sometimes to the planner’s benefit. If an event is being organized for employees rather than clients, look into secondary and tertiary cities, especially those with new hotel inventory coming onto the market, Avenel suggested. “The key thing, whatever the size and kind of event,” she said, “is to shop around.”

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