BUSINESS FROM FEDERAL government employees on a per diem rate can be a small but steady source of revenue for hotels, particularly during economic recessions when other transient and group travel shrinks. A new study from CBRE Hotels Research discovered that changes in per diem rates offered by hotels based on federal guidelines has little effect on the number of nights stayed by government workers or on their choice of location.
The CBRE study, outlined in an article by CBRE economist Bram Gallagher and research analyst Aman Patel, focused on Cobb County, Georgia, because it was designated as a Non-Standard Area by the General Services Administration in 2018, resulting in a significant drop in the government per diem rate during fiscal year 2019. Government business in the county, as well as in neighboring Fulton and DeKalb counties, made up about 3 percent of the total market.
Of particular importance in the study was the effect on the number of nights stayed by government per diem guests following the rate change. Specifically, it sought to determine whether the number of per diem nights stayed dropped enough to allow hotels to reach more quickly a compression threshold that would enable them to charge other guests higher rates.
However, the rate dropped around $20, a little less than the average per diem rate before and after the NSA designation, and there was no measurable change in neighboring Fulton and DeKalb counties, both of which had higher rates than Cobb.
“This suggests there is little appetite among government channel guests to maintain the rate they had previously been paying with non-per diem funds,” Gallagher and Patel wrote.
Likewise, the number of room nights charged by the government channel did not change in any of the counties.
“This would seem to suggest that the reduction in the per diem rate did not have an appreciable effect on compression nights. Little or no substitution from Cobb to the higher per-diem hotels in Fulton and DeKalb counties occurred,” the authors said. “Conversely, it does not appear that government travelers moved from higher per diem hotels in Fulton/DeKalb counties to lower per diem properties in Cobb county.”
In the end, the per diem rate change altered Cobb County’s aggregate ADR by about 40 cents.
“Considering the ADR for this area is well above $100, this effect is quite small—even with a dramatic shift in the per diem rate and rate paid by government channel guests,” Gallagher and Patel said. “The effect would be relatively more pronounced in markets with higher proportions of government channel guests.”
Last month, CBRE reported that, though the U.S. hotel industry is still strong, occupancy is expected to go down slightly but remain above 65.5 percent through 2021 while RevPAR is expected to grow at less than 1 percent.