Here’s a look at how the group and transient segments in the U.S. luxury and upper-upscale chain scales performed in the past year, and what that could mean for the industry going forward.
NASHVILLE, Tennessee—As hoteliers look for the clearest indicators of the state of the economy and hotel industry cycle, the performance of U.S. group and transient metrics might provide an early litmus test.
Valerie Woods, director of business development for hotels at STR, parent company of Hotel News Now, presented her insights on luxury and upper upscale group and transient performance during “In the mix: The lay of the land for group and transient business” at the 2016 Hotel Data Conference. Woods discussed how the group and transient segments have fared in the past 12 months, which markets are dependent on that demand and how the segments have performed on certain days of the week.
Here are the top five takeaways on U.S. group and transient business in the luxury and upper-upscale classes.
1. Group demand has taken a hit
In the 12 months ending July 2016, the U.S. hotel industry’s transient demand grew by 2.4% while average daily rate increased by 1.7%. A year earlier, transient demand growth was just a bit higher at 2.6%, while transient ADR grew 5.1%.
Conversely, Woods said performance of the group segment is “a very different story.” Over the same 12-month period, group demand was relatively flat at 0.3% growth, which is a sharp decline from the 3.7% growth reported in mid-2015, and group ADR growth fell from 4% in 2015 to 3.4% in 2016.
“(Group) ADR has pretty much remained the same and we’re at 3.4% (growth), but demand has dropped, so we’re just hovering around the same place as we were a year ago,” Woods said.
2. The widening gap in group and transient mix
Before the 2008 recession, the gap between U.S. transient demand and group demand was 16.7%. The gap widened even further to a 28.5% difference in 2010, which allowed the transient segment to recover more quickly than group. Woods said the trend of transient taking more of the mix from group still continues.
“After the recession hit, that mix changed dramatically, moving to 28.5% differential, so a lot of the recovery from transient was coming from group,” she said. “Last year, it moved out a little bit more, and right now there’s almost a 31% differential.”
3. The group-dependent markets
Woods presented two maps to illustrate which U.S. markets are most dependent on transient and group business. Coastal cities such as Los Angeles, San Francisco, Boston, New York and Miami all reported group business comprised less than 30% of their total demand, which made them transient-dependent markets.
Group-dependent markets—where group business comprised as much as 53% of demand and sometimes equaled or outpaced transient demand—included Louisville, Kentucky; Nashville, Tennessee; Indianapolis; Colorado Springs, Colorado; and Phoenix, among others.
“Some of the more group-dependent markets (are located) more towards the center of the country, and so … most (have) about a 50% (group) mix in comparison to the transient,” Woods said. “Some of these that are very interesting, we’ve heard about Nashville, Louisville is one of the top group markets. … We have some meeting planners who have said Louisville is one of the best markets for the money for groups.”
4. Analysis of the segments by days of the week
In the 12 months through July 2016, transient demand in the luxury and upper-upscale chain scales has increased every day of the week, but the largest growth is apparent over the weekend between Thursday (+2.5%) and Sunday (+3.7%). Group demand has grown on Tuesday (+0.5%), Wednesday (+1%) and Thursday (+1.9%), Woods said.
5. Meetings space rebound?
Woods said 10 new hotels with more than 50,000 square feet of meeting space have opened since 2013. That follows a decline in development of meeting hotels—from 2008 when 12 properties opened that fit the meeting-space criteria to two that opened in 2011. In 2012, no new hotels with more than 50,000 square feet of meeting space opened while three such properties closed their doors.
“Now we’re just starting to build some more (hotels with more than 50,000 square feet of meeting space) with a few opening each year, so we may be a little hesitant, but we’re certainly moving forward with the types of group hotels that we’re looking at,” Woods said.