Room rates set to increase for several key U.S. cities

Corporate relocations, a strong talent pool and Chicago’s geographically central location will continue to drive demand in the city and push rates upward. Photo credit: Pixabay/David Mark

Hotel prices in many key cities are expected to see modest increases in 2020, according to American Express Global Business Travel’s "Hotel Monitor 2020." However, a boom in hotel construction continues to increase guestroom supply as international trade tensions put a damper on demand, according to the research.

In the United States, flat occupancy and a full pipeline of rooms under construction will drive competition and limit the ability of hotels to raise prices, researchers noted. Following are forecasts for seven key cities, according to the report.

Chicago

Chicago will see the largest increase in room rates (+5 percent) from all of the key cities studied in the report. The city also takes the top spot in terms of hotel occupancy and revenue-per-available-room growth. Corporate relocations, attracted by a low cost of living, a strong talent pool and Chicago’s geographically central location will continue to drive demand and push rates upward.

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San Francisco

San Francisco follows behind with an expected 4 percent growth in room rates next year. That increase will come as visitor numbers increase and employment continues to expand, although at a reduced rate. Following the reopening of convention center Moscone Center in January 2019, occupancy rates are expected to rise after a decline in 2018. San Francisco is getting three new hotels through 2019, adding more than 625 rooms to the city, with a similar amount expected in 2020. Despite the supply boost, rising occupancy will lead to higher rates.

Seattle

Seattle is billed as one of the fastest-growing cities in the U.S., and its hotel’s room rates are expected to rise 2 percent. The city enjoys the best of both worlds because it’s a popular leisure destination and also home to leading technology and Fortune 500 companies. The Seattle-Tacoma International Airport is expanding while 10 hotels are in development, which together will add around 3,000 rooms. A further 21 hotels are in the planning stage. However, in addition to added supply, labor issues are keeping rate growth down. Seattle’s labor laws require employers to set schedules 14 days in advance and offer more hours to current employees before hiring new staff.

Atlanta

Atlanta is expected to raise room rates 1 percent. However, the area’s Perimeter area, where low supply growth is balanced with steady demand, could see prices rise 2.5 to 3 percent.

Los Angeles

Even though Los Angeles has been experiencing strong gross-domestic-product growth, hotel occupancy last year netted 80 percent. A year-on-year decrease is partly due to the city adding 2,000 more hotel rooms. Supply will continue to increase into 2020, and the market will take time to absorb the additions. Thus, room rates are expected to increase only 1 percent next year in L.A.

Boston

Despite falling occupancy, Boston experienced some growth in average daily rate in 2018 through 2019. This trend should continue into 2020, driven by consolidation and the major hotel brands setting revenue-growth goals. Researchers anticipate room rates in the market to grow 1 percent next year.

Houston

The story is flat in Houston, with room rates expected to see no increase next year. Last year through this year saw a steady increase in Houston’s hotel supply as new properties opened downtown and in the rapidly expanding suburbs. This new supply means rates are likely to remain flat even as recovering oil prices drive demand.

New York

Room rates in the Big Apple will decrease 3 percent next year. The city is seeing occupancy, RevPAR and average daily rate decline. Increased supply, with the addition of up to 29,000 rooms in the coming months, plus a softening city economy in 2020 will see room rates decrease even more.

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