In a time of increasing competition for guests, local hotels are converting everything but the kitchen into space where small business meetings can be held.

"Everybody's looking for meeting space," said a spokesman for the Madison Hotel at 15th and M streets.

Demand for small meeting space is providing a new marketing method for Washington area hotels, he said, at a time when the number of business people and tourists using hotels is not increasing as quickly as the number of hotel rooms in the area.

While business people once thought of meetings outside the office only in terms of conventions or huge gatherings in ballrooms, meetings now include everything from seminars on new technology to board meetings in paneled hotel conference rooms.

At the Vista International Hotel at 1400 M Street, space that once held exercise bicycles and weight-lifting equipment for an executive fitness club has recently been transformed into two meeting rooms at a cost of about $500,000. As a result, the Vista has probably gotten an additional 30 to 35 small groups that it could not previously accommodate, according to Cindy Estis, executive assistant manager of the hotel.

Around the corner at the Madison, an entire floor of guest rooms has been eliminated at a cost of about $1 million to provide new and enlarged meeting spaces that will be ready by September, according to a hotel spokesman.

"We're finding that even the smallest hotels are converting suites into conference rooms," said Michael diRienzo, assistant vice president of the Washington Hotel Association. "You just can't make it in Washington otherwise."

About a year ago, Washington hotel owners became concerned when a report commissioned by the Washington Convention and Visitors Association predicted financial stress and occupancy rates as low as 53 percent because of a flood of nearly 11,000 new rooms planned for completion in the area by 1990. Without waiting for those rooms to be finished, hotel owners have stepped up promotion efforts and have looked for new business in every conceivable area, according to Len Hickman, executive vice president of the Washington Hotel Association.

"A number of hotels got very scared because of the report and have been out there hustling," said Hickman, who pointed out that hotel association members reported that average occupancy levels for the first six months of this year stayed at about 72 percent.

While they were out looking for new business, many hotel managers identified small meetings as a potential area of growth. According to a recent study by the American Society of Association Executives, many associations are switching from one large annual meeting to a series of smaller meetings that can be held in different parts of the country, allowing more members to participate with less travel.

The 4,000 members of the American Gas Association, for example, hold more than 300 meetings a year, according to L. Dan Brown, director of meeting services and exhibits for the group. Of those 300 meetings, about 225 are committee meetings of 25 to 35 people that require a small meeting or board room and a separate room for a luncheon.

Hotel marketing directors have found that these groups don't want to be stuck in a cavernous ballroom meant for hundreds or in a partitioned-off space that isn't appropriate. Even many of the newer hotels with lots of space for small meetings find they do not have enough rooms to keep up with demand.

"You will never find a hotelier who doesn't want more meeting space," said Maureen Curry, director of sales and marketing for the Sheraton Grand on Capitol Hill, where a small restaurant has been converted to a room for private dinners and meetings.

Curry, who said that the hotel hosts about five different small groups each week, noted that corporate executives and their staffs, lawyers with clients, and lobbyists with group representatives often need a place outside the office that is away from telephones and constant interruptions.

Meeting rooms with large conference tables, resembling corporate board rooms, are popular for seminars as well as corporate board meetings, according to industry officials. At the Radisson Mark Plaza on Seminary Road in Alexandria, the 10 small board room-type rooms are frequently in use, according to Dennis Layer, the director of marketing for the hotel.

And while spring and fall are the most popular times for corporate meetings or small educational meetings, particularly in Washington, some groups are willing to meet even in the dog days of August.

"I've got every meeting room filled," said Christopher Isherwood, general manager of the Ramada Renaissance on New Hampshire Avenue in the District. "The Peace Corps and D.C. Public Schools groups are meeting. They're much more price sensitive and tend to schedule in the 'valley' periods."