Hotels rates to start rising in 2011

By Danielle Douglas
Capital Business Staff Writer
Sunday, January 30, 2011; 6:02 PM

SAN DIEGO - Consumers contemplating a getaway may want to book a hotel room sooner rather than later, as room rates are set to rise this year. Substantial increases of $10 or more are at least another year or two away, but the lodging industry plans to take advantage of improving market conditions.

Several leading hotel operators including Marriott International, Hilton Worldwide and Starwood Hotels and Resorts are incrementally upping average daily rates in light of the return of leisure and business travel, and the relatively fixed supply of rooms given the lack of new construction.

"We continue to see strength in pricing," Arne Sorenson, president and chief operating officer of Bethesda-based Marriott, said at the Americas Lodging Investment Summit here last week.

Marriott, which operates more than 3,000 hotels in 68 countries, got a jump on its competitors by selectively raising rates last year, before any meaningful pickup in travel. The gamble paid off as rooms began to fill in the summer.

Average daily rates for the U.S. hotel industry was $98.08 by year's end, compared with $97.51 in 2009, according to Smith Travel Research. The firm is forecasting a 4.2 percent increase in daily rates, while Colliers PKF Hospitality Research estimates 4.6 percent.

Locally, average daily rates are forecast to increase about 1.7 percent in the next four quarters, after falling 4 percent in the prior 12-month period, according to Colliers.

Rooms in the top 25 lodging markets are priced well under peak 2007 rates, Jan Freitag of Smith Travel Research told a room packed with conference attendees. Average rates in Washington, for instance, are $13 below peak prices.

"There is positive pricing power in the market because the demand fundamentals are a lot more healthy," he said. "There will be nominal growth [in daily rates] this year, but nothing significant until 2013."

The resurgence in occupancy may be tempered by the fact that unemployment remains high. A sluggish recovery could dampen leisure and business travel, making it harder to raise room rates.

Sorenson, though, says the economy is moving in the right direction.

"Yes, there are some structural issues that continue to pose a threat. But by and large, people are back on the road, hiring is starting," he said.

One of the advantages the industry will have this year, according to Sorenson, is the repricing of corporate business rates secured by meeting planners, which were discounted during the depths of the downturn.

"You add to the mix that piece of repriced business with consistent demand performance, and that bodes well for" pushing rates higher, he said.

Much of the planned increases will be most evident to business travelers; vacation seekers should still be able to find bargains.

"They have lots of transparency these days in terms of their choices," said Gary Fritz, president of's Partner Services Group. That should hold down prices.

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