Pricing in the group segment of the hospitality industry has increased by 33 per cent on pre-pandemic levels and this increase could be hurting demand, data from CoStar Group has revealed.
According to CoStar Group, a real estate market data and analytics company, revenue per available room (revpar) for luxury and upper upscale hotels rose by 33 per cent compared to 2019 levels, and by 19 per cent year-over-year until May. The driving factor behind this surge in revenue has been improvements in average room rates, as hoteliers have been able to push pricing while simultaneously passing on rising costs to consumers.
The recovery of demand, however, has been sluggish. Overall, compared to pre-pandemic levels, room demand is trailing by about 2 per cent while supply has increased by 5 per cent. This uneven balance has affected occupancy recovery. A closer examination reveals that transient room nights are slightly ahead of 2019 figures, while group bookings lag significantly behind, affecting overall occupancy for such properties.
Increased pricing could be the cause of slow group recovery. Group rates are presently 33 per cent higher than they were in 2019. With group room nights being largely driven by corporate business, such higher pricing for rooms could be affecting demand, despite companies’ preference for in-person gatherings.
Cities such as Manchester, Birmingham, Liverpool, and Cardiff have seen a stronger rebound in group business, currently matching or surpassing 2019 performance. In contrast, London is lagging, possibly due to higher costs and the absence of larger international groups. However, transient nights in the capital have at times balanced out the losses.
What they said
Cristina Balekjian, director of UK Hospitality Analytics at CoStar Group said: “The outlook for groups is broadly positive. Players in the industry are cautiously optimistic about a stronger rebound in 2024, while lead times this year are reported to being somewhat short by industry standards still, mainly driven by small- to medium-sized meetings. What is positive, however, is that despite being a more discounted segment, hoteliers have managed to drive group rates, helping to cover cost increases and driving profitability where possible.”
Why it matters
While hoteliers have successfully increased group rates, passing on rising costs to consumers and boosting revpar, the lag in the recovery of demand raises concerns about the long-term sustainability of ever-increasing rates.