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HSMAI Section: Group Market Trends: A Q2 Retrospective and Reflection

HSMAI Section: Group Market Trends: A Q2 Retrospective and Reflection

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October 26, 2017
Trends | Group Booking
Jim Vandevender - jvandevender@knowland.com

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2017 continues to set records for high hotel occupancy and ADR. Although the increases are not in the double digits as seen in the past two years, most markets continue to see robust gains, both in the transient and group segments. And while the hotel construction pipeline is very active, supply has not yet caught up to demand to change these dynamics. In the group segment in particular, these conditions create challenges for event planners as they struggle to find availability and/or attractive rates for their preferred dates and destinations.
Rising rates and limited availability in many of the larger groups and meetings markets have put hotels in the driver’s seat to be more selective about the business they book. Meeting planners are forced to reconsider their options on when and where to book their meetings and they must seek acceptable alternatives among a variety of choices: to be open to alternative dates in order to stay in a preferred market; to search for availability or look for rate relief by considering less expensive destinations; or change the chain scale in which they book their groups.
In 2017, ADR was up 2.2 percent in Q2 over the previous year, and occupancy and RevPAR also increased by 5 percent and 2.7 percent, respectively, for the same time period. As demand and rates increase in larger markets such as Chicago, Los Angeles, or Washington, D.C., planners that prefer those markets may be forced to smaller cities with availability that are within their budget. STR highlighted a few markets seeing the largest increases in RevPAR in Q2 2017 that may reflect these shifting booking patterns. Seattle and Norfolk/Virginia Beach both saw more than a 9 percent increase in RevPAR. Though group performance dropped overall in the U.S., many smaller, second-tier markets still showed similar patterns and gained group business from larger, more expensive destinations where ADR and occupancy are on a continual rise.
In a recent study on meeting and group activity in Q2 of 2017, Knowland highlighted destination shifts by analyzing the top corporate groups and the markets in which they met. The dataset included organizations that held more than 50 meetings from 2015 to 2017 in any U.S. market. The study also looked at what group market segments drove the most actualized meeting activity with a careful examination of corporate subsets that held the most meetings.
The study findings supported that meeting planners are changing destination booking patterns in response to high ADR and occupancies. It found that 48.1 percent of groups held more of their meetings in markets outside the top 40 (as per STR market rankings) than in top 40 markets in Q1/Q2 2017 compared to Q1/Q2 2015. Additionally, 35.6 percent of these groups had an increase of 5 percent or more of their total meetings held in smaller markets over top-40 markets.
Though the top 5 destinations in Knowland’s study closely mirror markets that consistently maintain the highest occupancy rates (Washington, D.C., Chicago, Los Angeles, Boston and Orlando), smaller cities are gaining ground. For all subsegments nationwide, the markets outside the top 40 that showed the most growth in the percentage of events from 2015 to 2017 in Q1 and Q2 included Newark, N.J., New Orleans, West Palm Beach-Boca Raton, Albuquerque, N.M., Nashville and Charleston, S.C. Earlier this year, STR reported that New Orleans had an 8 percent RevPAR increase, rising to $118.90. 
In both Knowland’s Q1 and Q2 studies, corporate events unsurprisingly dominated the total number of events in every major market. In Q1, Knowland found that the top five industries that drove meeting activity were technology, education/training, healthcare, manufacturing and financial/banking groups.
In the Q2 study, the same corporate subsegments still dominated, but the order shifted. Education/training led in total number of actualized events, followed by manufacturing, health care, technology and financial/banking. Education/training groups represented 8.67 percent of the total group market. Healthcare and technology organizations represented 7.55 percent and 7.46 percent, respectively.
The five subsegments which showed the most consisatent growth in the most markets in Q2 from 2015 to 2017 were more varied. Construction showed increases in 17 U.S. markets. Legal grew in total number of actualized events in 14 markets, and health care saw rises in 11 markets. Technology and biotechnology also showed significant increases in 11 and 10 markets, respectively. These five subsegments accounted for nearly 21 percent of total corporate meetings in Q2 of 2017.
Washington, D.C., Philadelphia and Chicago were the markets with the largest growth in total corporate market share in Q2 from 2015 to 2017. Washington, D.C. had a 0.84 percent growth in corporate market share, controlling 4.68 percent of the 2017 Q2 corporate market. Philadelphia saw a modest 0.69 percent growth in share, owning 2.73 percent of the 2017 Q2 corporate market. Chicago, with a 0.62 percent growth in corporate market share had the most corporate events, hosting 7.55 percent of the corporate market during the same timeframe.
In relation to shifting booking patterns of planners, however, the most interesting aspect of the study suggests that specific top-producing corporate subsegments are exploring smaller markets for their meetings and events. The Knowland study found that organizations such as major beverage and technology companies showed significant increases in percentage of their total events held in smaller markets. Approximately 30 percent more of the number of events they hosted were held in non-top 40 markets in 2017 compared to bookings in 2015.
The corporate organizations showing the greatest increases held nearly 70 percent of their meetings in smaller markets in 2017, up from less than 40 percent in 2015. This is a strong indication of reactionary changes in booking patterns driven by market conditions. 
Overall, the top corporate subsegments driving the shift from top 40 markets to smaller markets showed as much as a 6.82 percent increase in percentage of total meetings held in non-top 40 markets. Tobacco, arts/entertainment and online retail were the subsegments that showed the greatest amount of movement toward smaller markets.
The Knowland study also looked at shifts in group bookings from a chain scale perspective. The study supported that planner booking patterns indicate shifts toward smaller chain scale hotels in addition to the smaller markets noted above. The Knowland study focused on group activity in a sample of hotels to provide data to support this trend.
Within Knowland’s database of recorded meetings and events, there is a high concentration of Hilton Garden Inns and Hyatt Places in the southeastern United States. Knowland targeted these brands to sample the movement of group activity. The groups in the dataset included top corporate groups that met in the southeastern U.S. and held 10 or more meetings in Q1 and Q2 of both 2015 and 2017. The study found that 24.9 percent of these groups had an increase in the percentage of total events they held in Hilton Garden Inns and/or Hyatt Places compared to any other brand. Furthermore, 13.5 percent of these groups had a 5 percent or larger increase in the percentage of meetings they had at Hilton Garden Inns and/or Hyatt Places.
Among all corporate groups in the southeastern U.S., there was a 0.5 percent increase in the percentage of meetings that were held at a Hilton Garden Inn and/or Hyatt Place, representing 3.4 percent of the corporate market in 2017 compared to 2.9 percent in 2015. The corporate subsegments showing the largest shift to Hilton Garden Inns and/or Hyatt Places included online retail, direct selling and tobacco.
Many of the hotels in this upscale chain scale, as categorized by STR, have a smaller amount of meeting space when compared to higher chain scale properties. The Knowland study found that 40 percent of all corporate sub-segments showed a decrease in their total meeting space used, with an average decrease of total space of nearly 25 percent from 2015 to 2017. By decreasing the average size of their meetings, groups increase their options for potential destinations because they can include smaller hotels in a lower chain scale that may have fewer square feet of meeting space. 
The impact of high demand is a chain reaction. It results in healthy ADRs and robust occupancy levels that then affect not only where meeting planners are placing their groups, but also the type of hotel they consider. The deeper levels of group data now available to the industry provide clear evidence of meetings and events shifting from larger destinations and higher chain scales toward smaller destinations and chain scales.
Looking into the future, however, today’s active construction pipeline will eventually increase inventory in many markets. As new hotels open and more new rooms become available, Knowland expects patterns to shift again. In July, STR reported that there were 4,899 hotel projects under contract and 1,436 hotels in the construction pipeline in the U.S. These properties will total room numbers of 591,865 rooms under contract and 188,734 rooms in the construction phase. With a 10.2 percent year-over-year increase in actual hotels being built compared to last year, markets enjoying the bounty of opportunities may need to reconsider strategies as new properties present more options for planners. Both larger markets on the top of the occupancy and ADR rankings, and smaller markets catching new group opportunities from shifting booking patterns will be challenged to sustain and repeat new and annual opportunities as room inventory increases.
For the time being, though, planners will likely continue to search for alternatives among lower-tier markets and chain scales as long as ADRs remain high and availability is constrained in top-tier markets. With booking patterns shifting in this direction and analytical data on group trends and booking patterns at their fingertips, hotel sales teams are beginning to reconsider group targets and more strategically deploy sales resources to leverage new opportunities. No matter what the future holds as markets evolve, group data will continue to shine a light on market trends to help hoteliers learn from the past and be proactive about potential opportunities.
Jim Vandevender is the chief marketing officer, and Katherine Leiden is a marketing manager with Knowland. Jim can be reached at jvandevender@knowland.com.

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