NASHVILLE, Tennessee — Business-transient demand for hotels has been the slowest segment to rebound since the start of the COVID-19 pandemic, and Jan Freitag, national director for hospitality market analytics at CoStar, believes the segment may have permanently shifted.
During a session titled “The new leading indicators” at the 2022 Hotel Data Conference, Freitag said he’s pessimistic on the return of business-transient demand.
“I am very bearish on this,” he said.
Hotel occupancy in urban markets has dipped recently and is in need of a boost from weekday business travel, Freitag said, adding that office occupancy and office sublet data fuel his doubts of a recovery in business demand.
Office occupancy is still down significantly in some major markets, dipping below 50%, he said. Traveling for business becomes a moot point if there’s no one in the office to travel to, he said.
“If I’m supposed to visit you and you’re in the Park Avenue office of some major law firm but you’re not there, I’m not going to visit you in your kitchen in Hoboken; we’re going to do this on Zoom,” he said. “There is, to me, a clear relationship between the lack of office return and urban occupancy.”
Workers have slowly begun to return to office since the start of the pandemic, which in turn leads to more business travel, but the gap compared to 2019 will be a long-term issue moving forward, as some people became comfortable working from home permanently, Freitag said.
Office sublet space has nearly doubled since 2019 due to low utilization, an indication that companies are trying to monetize sunken costs of building rentals, he said.
“This to me means we have not as many people in the office because the offices aren’t there anymore,” Freitag said. “As that number continues to be high and is not being absorbed because people are like, ‘I’m all good on office space,’ I think that has an implication to what the business traveler is going to do or not do.”
Relation Between GDPI and Room Demand, Consumer Confidence
Although there is a relationship between GDPI — growth domestic product on a private personal consumption level — and room demand, Freitag said there is little correlation between the metric and consumer confidence.
In an attempt to forecast the future of GDPI growth and consumer confidence, Freitag showed data from the Great Recession. During that time, GDPI and room demand both decelerated for two consecutive years, while consumer confidence increased in year two.
Consumer confidence is on pace to decelerate for the fourth consecutive year in 2022, but room demand and GDPI have positive growth and will continue to grow moving forward, he said.
“If you ask people, ‘How do you feel and what is your travel intention, are you going to do something,’ I’m not sure that those numbers really relate to what actually happens,” Freitag said. “When things are going well, people are like, ‘Oh, things are great, I want to get away,’ and when things are terrible, they’re like, ‘This is terrible, I want to get away.’
“I’m not sure that this consumer confidence number, when you overlay it with group demand, really has a whole lot of explanatory power.”
COVID-19 Stringency vs. Hotel Occupancy
At the U.S. state level, there doesn’t seem to be a lot of correlation between COVID-19 stringency — how much travel is curtailed; i.e. school and public event closures, public information campaigns, vaccination requirements and travel restrictions — and hotel occupancy, Freitag said. Some states with low stringency in summer 2021, such as Alaska, had high hotel occupancy; some states with high stringency during the same time period, such as Hawaii, also had high occupancy.
“At the state level, I’m not sure the stringency matters,” he said.
Even though there are a high number of COVID-19 cases in the U.S. compared to other countries in 2022, stringency has declined and occupancy is back to normal seasonal trends, Freitag said.
Stringency and occupancy seem to have a lot more correlation on the national level, though. In China, comparatively speaking, there is a low number of cases, but hotel occupancy is still below 50% due to high stringency, he said.
“This is going to be super interesting to watch because I’m not sure you can recover a hotel industry if you continue to have these super high stringencies for the country,” he said.