2017 has you biting your nails? You’re not alone. Most US hotels fear the forecasted occupancy and ADR for the coming year. Though occupancy looks flat an ADR is less than hopeful, you can still make this year work for you. Create an action plan focused on reassessing your competition, being confident in controlling your own rates, and taking a more proactive approach to booking group business.
CBRE predicts occupancy in 2017 to stay flat (65.3%) and ADR to grow 3.3%, continuing its downward growth trend since 2014.
The hotel construction pipeline is one of the main factors in this prediction. For the past few years, hotels have benefitted from low supply and high demand. At the end of 2016, however, the pipeline is up 21.2% over 2015. The increase in new competition will put pressure on hotel rate structures. ADR movements, however, are still dependent on location and chain scale. Denver, Seattle, Nashville, and Dallas are projected to see the biggest increase in competition. Of the total US hotels under construction, 65% are upscale and upper midscale -- accounting for 71% of new rooms.
In his article “Should We be Concerned About ADR?,” Trevor Stuart-Hill highlights a bright side of the disappointing predictions: Sector resilience and cyclical demand of the hospitality industry. It may not be enough, th
ough, to wait 2017 out and hope for the market to bounce back. STR shows that ADR recovery times have increased after each of the past recent declines. If ADR continues as predicted and the competitive balance shifts with increased construction, hotels will need to take a more proactive approach to get ahead of the curve. Creating action plans to account for possible changes can help hotels make well-informed decisions and fare better than new and old competition in uncertain times.
Your Action Plan
When it comes to competitive pricing, hotels stand to lose revenue if they increase or decrease their prices based on local competitors. If competitors in your backyard start to drop prices as a result of disappointing numbers, don’t react right away and let them control your rates. Hold tight to daily rates that reflect your value to potential guests and emphasize what makes you stand out from your competitors -- and what makes you worth the rates you ask for.
While assessing what differentiates you from your local competitors, stop to ask yourself whether these properties in your backyard are actually hotels you directly compete with. This goes beyond offering the same or similar level of service. More importantly, do you cater to the same types of groups? What groups meet at your hotel and where else are they meeting? What types of groups are meeting in similarly sized function rooms to yours and at which properties? Asking these questions could change your outlook on who your competition is and open you up to more opportunities willing to pay the rates you set.
On that note, be proactive in reaching out to groups instead of waiting for them to find you. By proactively searching for group business, you have more power to control rates because you can target only the groups that can supply the quality of business you want for your hotel. Competitor hotels may not be doing this, which gives you additional leverage to book new business in 2017.
Bonus Tip: If you can target groups that uphold or exceed revenue parameters, you’ll take a weight off the shoulders of other departments. Operations feels strained when managing labor costs in light of inflation, so staying in control of rates can help them achieve positive growth that affects benefits, salaries, and wages -- which benefits everyone.
If you want to stay in control in 2017, don’t wait around for the market to rebound and/or let competitors dictate your rates. Take this advice heading into the New Year:
- Hang tight to rates before making a snap decision that could decrease overall revenue
- Reassess your competition by thinking outside the traditional “comp set”
- Be open to proactive selling and reaching out to new groups
- Search for new opportunities outside your market that meet or exceed revenue parameters to take the burden off operations costs
- Know your value -- and how to market it -- and use it to your advantage
No matter what, remember that so far these are only predictions, not reality. Stay positive and be open to all the potential opportunities that lie beyond your traditional groups, methods, and thinking.
It’s a new year. Let’s resolve to make 2017 a great one.
Knowland provides meeting/group data and innovative technology for the hospitality industry to help hotels, CVBs, and other venues drive revenue with meetings market intelligence.
Want to know more? Visit www.knowland.com or call 202-312-5880.