Expect to Pay More for Hotels Next Year -- Especially in Big Cities

Room rates are increasing more slowly -- but that's little consolation.

By Martha Lynn Craver, Associate Editor, The Kiplinger Letter

June 26, 2007

Hotel costs will rise a bit more slowly next year. Figure on an average hike in room rates of about 5% in 2008, compared with this year's 6%. New construction has increased supply, especially in smaller cities such as Raleigh, N.C., Omaha, Neb., and San Antonio. In those cities, land is still affordable, and the growth in demand makes it worthwhile to add more rooms.

The story is different in the nation's top 10 markets: Boston, New York City, Washington, D.C., Miami, Orlando, Fla., Phoenix, Los Angeles, San Diego, San Francisco and Honolulu. The rates in these cities will go up about 8% because construction of new hotels is limited by the scarcity of sites and sky-high prices for what little land is available. Some of the top markets have actually lost rooms in the past two years (about 60,000, in all) as hotel properties were converted to condominiums. Two examples: The St. Regis in Los Angeles and the Plaza in New York City. New York leads the pack with the highest daily room rate of $230, followed by Miami at $192, then Honolulu at $166 and Washington, D.C., at $150.

There'll be fierce competition for what little space is available in big cities, with limited-service hotels pushing hard to get a share. The Hampton Inn, Holiday Inn Express, Comfort Suites and others want to locate in urban centers to offer business travelers an alternative to higher-priced properties.

Tips for holding down costs include taking advantage of seasonal rates. For example, rates in Florida cities and New York City will be lower in the summer. Try to schedule meetings on Thursday or Friday. Thursday nights are the lowest-demand night for hotels, and they usually adjust their rates accordingly. If you have a car, consider hotels a mile or so away from the city center to get lower rates.

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