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From left: Jeff Patton of Hilton; Cristina Little of BRE Hotels & Resorts; David Craig of Pebblebrook Hotel Trust; Jennifer Rutkowski of Brookfield Properties; Jeremy See of HEI Hotels & Resorts

Planners Get Straight Talk from Hotel Owners

At a recent meetings-industry conference, hotel executives explained how their properties struggle to balance rising operational costs with competitive rates for meeting groups.

With prices for virtually every element of corporate and association meetings alarmingly high, planners naturally want answers as to how the situation has reached this point, and whether prices will maintain the same upward trajectory.

To that end, four hotel-ownership executives took the stage last week at the 20th annual Pharma Forum conference for life-science meeting professionals to give the audience some of the ugly details about why event pricing is so different from the pre-pandemic environment—and why today’s rates are not a temporary blip but rather a new foundation for future prices.

First, “many hotels lost tens of millions of dollars each in 2020 and also in 2021, and maybe came close to breaking even in 2022,” said David Craig, senior vice president of asset management for Pebblebrook Hotel Trust. “That’s because all the fixed costs of maintaining a property still had to be paid” during a time when in-person events were halted or limited. Those expenditures must be recovered by hotels over the next couple of years, he noted.

Next, “labor costs have gone up unexpectedly fast,” well beyond the rate of inflation, said Jeremy See, chief commercial officer for HEI Hotels & Resorts. Craig added that “union activity is picking up, which raises costs, and some local governments are actually dictating how many rooms housekeepers can clean each day, which means we need more of them.”

In addition, “energy costs have nearly doubled in the past four years, while our insurance premiums have gone up well above the consumer price index,” which has risen a total of nearly 30 percent since early 2020, said Jennifer Rutkowski, senior vice president, revenue and profit optimization, for BRE Hotels and Resorts.

What’s In It for Event Groups?
On the flip side, hotel owners say they understand the importance of the meetings segment to their business and will do what they can to make the on-property experience worth the cost. “Group is one of the most profitable segments for us, and they fill a solid percentage of our inventory well ahead of time, which provides us with financial stability,” Rutkowski noted. “Also, group food and beverage contributes about as much profit as guest rooms. And event groups add life and energy to a hotel’s public spaces, which is critical for every guest’s experience. So, no matter how strong leisure gets, we tell our hotel teams to respect the group customer” and work with them to ensure their satisfaction.

To help with this, properties are being renovated with social interaction and Gen Z-favored amenities in mind. For instance, “lobbies are getting redesigned for a more engaging experience, with clear sight lines across the entire space to the restaurant and bar as well as more seating pods and gathering areas,” See said. Also, “we’re reimagining rooftops and other areas of the building so groups don’t have to go off property for a social event,” noted Jeff Patton, vice president of sales, America, for Hilton, and the panel’s moderator. “And we’re spending quite a bit on fitness and wellness amenities, plus new charging stations for electric vehicles.”

While these are incremental projects, the panel warned that full-scale property renovations won’t be as frequent as they used to be. “They will still happen, but in the past, owners were on about an eight-year cycle for doing it,” said Craig. “Now, it’s looking like 10 to 12 years between full-scale renovations.”  In addition, “You’re going to see fewer new builds in the luxury and upper-upscale segments because of the higher cost of construction along with the higher cost of debt.”

Lastly, Michael Dominguez, president and CEO of Associated Luxury Hotels International, said during a different Pharma Forum panel that even before hotels do any renovations, “many will soon have to refinance their existing debt at interest rates likely to be much higher than their previous loan,” resulting in higher monthly payments for properties—which will have to be covered by more revenue from event groups and other guests.

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