Excerpt from CoStar
The GSA's $2 increase in U.S. lodging per diem allowances for fiscal year 2023 could lead U.S. hoteliers to cut back on government rates to save rooms for higher-paying leisure, group and business travelers.
The U.S. General Services Administration’s increase in lodging per diems for 2023 received a relatively lukewarm reception from hoteliers, who say many hotels may end up abandoning negotiated rates for government employees in favor of higher-paying demand segments.
The increase from $96 to $98 for the continental United States per diem rates is good news after two years of rates staying flat because of the COVID-19 pandemic, but hoteliers found it difficult to get excited about what amounted to roughly a 2% increase.
A review of U.S. hotel monthly average daily rates from Oct. 1, 2021, through the end of July 2022 shows that rates grew from $135.04 to $159.16, a 17.8% increase. Broken down by chain scale, rates increased from $70.54 to $79.74 at economy hotels and from $95.07 to $110.23 at midscale hotels. Upper-midscale hotels reported ADR increased from $120.55 to $137.42 while upscale rates grew from $141.12 to $163.79.
The lodging per diem rate increase is a mixed bag, said Jennifer Driscoll, vice president of revenue management at McNeill Hotel Company. It’s good that the rate increased after two years without increases, she said, but the $2 increase in nightly rates isn’t proportional to the needs of hotels.
Labor costs have grown past 25%, and inflation has compounded over the past few years to 16%.
“A 2% increase is very hard, based on what we’re going through right know, and we don’t expect any of that to change into the next year,” she said.
Revenue Strategy for Government Rates
With the $2 increase, $98 is the standard hotel reimbursement rate for federal travelers during fiscal year 2023 starting Oct. 1, 2022. There are markets in the U.S. where rates will change by different values based on those individual market conditions. The GSA provides a search tool here to look at specific markets.
The meals and incidentals standard rate remained at $59 while certain markets allow up to $79.
The per diem rate did not change for many of the hotels in McNeill Hotel Company’s portfolio, Driscoll said. Others, such as its beach hotels, benefited from rate increases.
Because of the generally low per diem rate increase, Driscoll said she believes the government rates will get yielded out more often next year as hotel demand recovers. The government rates will be hotels’ lowest rates, for the most part, she said.
“As hoteliers, we have to look to see an optimal return,” she said.
Jason LaBarge, senior vice president at HP Hotels, said he also believes the low increase in per diem lodging rates compared to hotel ADR growth could cause hoteliers to shut off the availability of government rates.
“As business continues to return and we’re seeing more and more corporate travel through the second quarter and the third quarter, there’s not going to be as much need for that fill business, especially during the week Monday through Friday,” he said.
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