The U.S. General Services Administration increased per diem rates for 2020, but hoteliers expect government travel to be flat compared to 2019.
REPORT FROM THE U.S.—The U.S. General Services Administration increased national per diem rates by $2 for fiscal year 2020, and hoteliers expect the effect of that increase to vary from market to market.
Markets where there’s an increase in per diem will see more competition between hotels, said Lori Parker, director of sales and marketing at the Hilton Garden Inn Virginia Beach Town Center, a Remington Hotels property.
- CBRE researchers wrote more on what happens when per diems change.
“Upscale hotels that may have not offered government per diem before will be more inclined to make it available,” she said via email. “This will be amplified with the lower demand and increased supply that is expected next year.”
Flat government travel expectations
Overall, government travel is expected to be flat compared to 2019, sources said.
Bill Winzer, VP of revenue management at Hersha Hospitality Management, said he attributes flat business to smaller government groups across his company’s portfolio.
While government travel will likely be flat for most markets in 2020, Parker said markets that were hit hard by the government shutdown in early 2019 will be an exception.
Parker said she has not seen noticeable change in group size at her property.
“However, there may be a larger push next year for military groups to have two people per room instead of singles and that would reduce group size,” she said.
The second and fourth quarter are busy times for government travel, Winzer said.
Logan Jonas, corporate director of revenue management at Blue Sky Hospitality Solutions, agreed there could be more group business in the second quarter, but said it really depends on the market.
Government travel will be stronger in markets where there are military bases as well as government contractors, Winzer said. For Hersha, those markets include San Diego; Miami; and Groton, Connecticut.
The bump in per diem rates should have a positive impact on corporate travel for hotels in the current low revenue-per-available-room environment, Blue Sky’s Jonas said.
Virginia Beach saw a 3% per diem increase, which will help Parker’s hotel going into 2020 as it has “a large number of corporate accounts that are government contractors and typically need rates at per diem,” she said.
Per diem rates at the Hilton Garden Inn Virginia Beach Town Center are also used as a benchmark for negotiating rates for corporate business “as the per diem rate is usually the lowest rate offered at our hotel, and corporate rates should generally be priced above,” she said.
“If a corporate client gives pushback on a rate and wants it below per diem, I explain that we are generally able to fill our hotel with government guests if we make per diem available, so it doesn’t make good business sense for us to offer rates below that level,” she said. “Once they understand these dynamics, it is easier to secure rates above or at least equal to per diem for our corporate customers.”
For Hersha’s properties, Winzer said he expects to see special corporate rate increases in the 2% to 3% range.