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You're Not Imagining It: Hotel Rates Are Surging

Lodging * It's supply and demand--the number of upscale travelers is rising faster than the number of fancy places to stay.


I saw a Motel 6 sign the other day and felt a stab of nostalgia.

Let's see if you agree that "stab" is the right word: Motel 6 got its name because its beginning room rate in 1962 was $6 a night. These days, it's $69.99 and up at the original Motel 6, near Santa Barbara's East Beach, and much of the lodging business has gone far beyond that. In fact, a new study shows the average daily hotel rate in major U.S. cities at $120.93.

That figure comes from PKF Consulting, a travel industry research firm based in San Francisco. One response to it is to fulminate about how everything costs so much these days, and of course, I'm happy to do that. But it's also interesting to look at a few more numbers from that and a couple of other industry reports.

The unhappy bottom line: Prices are going up. Hotel rates are up 3.6% from last year, PKF says, and they're likely to increase 3.3% more in the next year.

This is more than just inflation. In the past six years, PKF's average hotel room rate (mostly urban properties, averaging 210 rooms) has grown 37%. A similar number comes from Tennessee-based Smith Travel Research, whose measure of hotels and motels nationwide includes more budget, rural and suburban properties. Smith's figures show a 35% increase in room rates since 1994.

Government figures show the Consumer Price Index has grown 15.6% concurrently. If the hotel business were marching in lock-step with the CPI, those $88.09 hotel rooms from 1994 (PKF's average price for that year) would be renting for just under $102 now.

So why are they more?

"Supply and demand," says Robert Mandelbaum, Atlanta-based director of research for PKF.

For several years now, the number of upscale travelers has been growing faster than the number of fancy hotels. The hoteliers, knowing this, adjust prices accordingly. The result is a set of numbers likely to nag at me the next time I approach a check-in desk: Mandelbaum's research shows the average hotel enjoyed a 24.3% profit margin in 1994--that is, for every dollar spent, $1.24 came in. But this year, the industry profit margin is an eye-opening 31.5%.

Where rates are going now: PKF's analysts found that average rates have increased this year in all 46 of the nation's largest hotel markets. Nationwide, PKF predicts a $124.95 figure in 2001.

That could change, of course, in the case of an economic downturn. But this annual report, released Oct. 3, represents the experts' best guesses based on mountains of data.

In PKF's city-by-city analysis, New York is the costliest in the country, with average daily rates this year of $240. That's expected to reach $250 in 2001. (With overall occupancy running about 83%, says PKF's senior vice president John Fox, supply is behind demand and New York is basically selling out 250 nights a year.)

In Boston, the second-priciest U.S. market, PKF estimates rates of $203 this year and $212 next.

In San Francisco, where rates grew a nation-leading 10.3% from 1999 to 2000, this year's average rate of $169.45 nightly is expected to reach $179.60 next year. Occupancy rates are even higher than New York's--about 85%.

Here again is supply and demand: Despite a recent building boom, the compact city of San Francisco has just 33,000 hotel rooms--about 90,000 fewer than Las Vegas. (PKF excludes Las Vegas from its statistics, Mandelbaum says, because casino-hotels have been reluctant to disclose details of their room revenues.)

Results are mixed for four other popular Western destinations: San Diego, Santa Barbara, Santa Fe, N.M., and Seattle. San Diego rooms are expected to average $132 this year, $137 next. Santa Barbara's: $138 this year, $146 next. Those cities had slight occupancy increases this year.

Not so in Santa Fe and Seattle, where occupancy rates have been falling. Because of increased inventory, rates are rising more slowly. In Santa Fe, PKF predicts $123.74 this year and $126 next. In Seattle, the researchers forecast $131 this year and $135 next.

On the Hawaiian island of Oahu, a 9.4% increase in occupancy this year has brought a 3% increase in rates from 1999 to 2000--suggesting that the island is recovering from the doldrums that afflicted it for the second half of the 1990s. Honolulu's average rate this year: $121, rising to $124 in 2001.

The least-expensive hotel cities among the 46 assessed by PKF: El Paso, Texas ($58 this year, $60 next), followed by Baton Rouge, La., and Corpus Christi, Texas (both at $66 this year, $67 next).

How to find something less expensive: Comparison shop, whether by phone, by Internet or through a travel agent. Don't forget to invoke memberships in the auto club or AARP; they're often good for 10% off, occasionally more. Also remember that big-city hotels (which depend mostly on business travelers) often run weekend specials, and that resort hotels (which depend on leisure travelers) are more likely to run their lower rates on weekdays.

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