New travel story: The rise of the mega-city

When it comes to tourism, bigger really is better. The world’s mega-cities continue to outpace the rest of the world by attracting leisure, corporate and meetings travel.

A new study of the hotel industry from Hogg Robinson Group found that interesting new twist to the tourism story.

Like diversifying your investment folio, the combination of leisure, corporate, and conference and exhibition traffic helps the mega-cities rise above the normal ebb and flow of market trends, and allows them to win (read, raise rates) no matter what happens in the general economy.

Eleven of the top 50 cities by room rate are classified as megacities, "and we are clearly beginning to see some marked differences between these and other cities that are popular business destinations," said Margaret Bowler, HRG director of global hotel relations.

"With the advantage of being able to cater for a variety of requirements, megacities can attract a more diverse range of business," she noted. "Other cities that are simply popular business destinations are subject to the general trend of the market and the consequences of wider economic pressures that would influence fluctuations in demand."

Bowler noted that "clients need to be aware of the rise of the megacity and the impact this growth pattern and dynamic has on their hotel spend." In other words (surprise!), sleeping in a mega-city costs more, and rates there rise faster.  

That trend helped make New York hotels the world’s top performers last year. Average room rates were buoyed by higher corporate demand from the financial and banking sectors as well as meetings and leisure travelers, despite new hotel openings that added to inventory.

Hotel rate increases in Chicago, too, were driven by the rebound of both the convention market and the corporate sector, as the manufacturing and financial sectors invested and recruited more in a city that has not seen any new significant hotel product for some time now, the report said.

New York and Chicago, along with Toronto, helped North America as a whole achieve the best returns of any continent last year, with growth across all markets. North America in general saw "a very positive period" (read, rates are up) "as the pace of the global recovery takes hold here more so than in other regions."

Overall, the survey "shows evidence of early signs of recovery in hotel rates but not to the levels expected by the market, in some cases four or five percentage points below what was expected." 

Other interesting findings include:

• Pittsburgh saw an upsurge in corporate demand from the health, research and steel sectors, and a significant lack of rooms to meet this demand pushed up its average room rates. Similarly, Houston rates rose 6%, driven by booming oil and energy sectors, and in Toronto two major conventions pushed up occupancy, while both cities saw little new product come online.

• London saw a modest growth of 1% in ARR, which considering all the new bedroom stock that has opened in the last 12 months shows that corporate demand remains strong in the capital.

• For the 10th year running, Moscow is the most expensive city for business travelers.

• There are four new additions to the top 50 cities in terms of room rates:- Toronto (number 26), Athens (number 34), Pittsburgh (number 46) and Chennai (number 48).
• Munich had the highest increase in average room rate of 39.07%; however, this was driven by Bauma Fair, a huge international triennial event.
• Within the UK market, only London, Aberdeen and Edinburgh recorded increases in ARR,
• India is seeing a return to growth, especially in those cities that are seeing growth in the outsourced IT sector and SME business.
• The Middle East and West Africa continued to be affected by general uncertainty and increased capacity.
• Barcelona, Cape Town and Munich have benefitted from good convention business.
• Europe as a whole saw a slight drop in ARR, driven mainly by the weaker performance in the UK and some individual key cities such as Athens and Dusseldorf.
• MEWA continues to be effected by the political and socio-economic instability together with the civil war in Syria, however growth in the Gulf pushed a slight regional growth.
• Asia saw modest growth overall, which hides some large swings each way in key cities.
• In the UK, Aberdeen saw the largest growth in ARR, driven by high demand (from a booming oil and energy sector) and limited new supply in the city.
• The rest of the UK was either flat or showing modest drops in ARR.

For the full study, go to http://www.hrgworldwide.com/Media/Press-Releases/Pages/HRG-Interim-Hotel-Survey.aspx.

By Cheryl Rosen