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by Michael J. Shapiro | April 01, 2011

"Hoteliers may be looking at their still relatively empty books and trying to fill them with any business they can get."
– Jan Freitag, STR vice president

While transient-travel demand for hotel rooms has fully recovered to pre-recession levels, demand on the group side is rebounding far more slowly, according to data released by Smith Travel Research. In fact, 2010 group demand fell short of 2008 numbers by 35 million rooms.

Average daily rate, meanwhile, continues to lag below pre-recession levels for both transient and group business. Despite demand having surged for transient bookings, the average daily rate last year for those rooms remained well below 2008 levels. Based on current trends, it will likely be another two years before the transient rate fully recovers. The group rate, noted STR vice president Jan Freitag, might have an even tougher road to recovery.

"One concern from the hotel perspective is that group business being booked now for events through 2012 and 2013 will be based on current transient rates," Freitag explained. "Hoteliers may be looking at their still relatively empty books  and potentially trying to fill them with any business they can get, pushing back group-rate recovery even longer."  

STR has found that hotel demand also is being pushed from urban properties out to the suburbs. When speaking at the Hunter Hotel Investment Conference in Atlanta last month, Freitag noted this trend is a process common to late stages of economic recoveries, which he dubbed the "Woodworth Theorem," after PKF Hospitality Research president R. Mark Woodworth.

In this case, per STR data, occupancy at urban properties has recovered faster than suburban hotels. As of January of this year, occupancy at urban hotels was 66 percent, while suburban properties stood at 58 percent full. Accordingly, urban hoteliers are becoming less likely to discount their rooms, while suburban room rates have remained below 2009 levels, and demand is inexorably shifting to suburban properties.

STR doesn't have group-specific numbers with respect to this trend. "But I would think this is going to happen with groups as well, possibly in 2012," Freitag said, as planners take advantage of attractive deals outside of city limits when booking future events.

STR data also confirms that the higher chain-scale segments are leading the recovery: Luxury demand was up 12.5 percent, year-over-year, in 2010 and was the only segment to post an increase in average daily rate. "I think we'll see group demand more normalized in the upscale and upper upscale segments," noted Freitag. "The luxury discounts were an anomaly in 2009." (See bit.ly/exK4hf  for STR's complete slide presentation from the Hunter Hotel Investment Con­ference.)