Hi everybody . It's no Show . I'm Matt Brown , joined as always by my co-host , jeff Borman . Jan Fritag is our guest today . He is National Director Hospitality Analytics for the CoStar Group . Costar is the industry leader in commercial real estate information analytics and news . Jan is a world traveler . He's an NBA fan .
He can casually reference Optimus Prime from the Transformers and industry articles If you want to know anything about anything regarding the future of the hotel business . Jan is Merlin , gandalf , dumbledore , nostradamus all rolled into one . Jan , welcome to no Show .
Thank you , especially the beard . I guess that's definitely something I got to work on . Thanks for the kind introduction . The future is unknowable . We all have our opinions . I certainly have some strong opinions about the future . I hope I can back them up with some of the data .
Jan , I first became familiar with you during the darkest time in our industry's history , in March of 2020 . As COVID began closing borders and demand plummeted , you were doing weekly videos in state of the industry . For me and tens of thousands of others , your weekly videos were must-see TV at that time .
You didn't just provide insights that we all craved so badly in a period of fear and layoffs , your calm demeanor really made you the right person for that moment too . Frankly , I wish you'd still do them . They're really great . Thank you for that .
Thank you for saying that . You're saying must-see TV . I think nobody had anything else to do at the point . You're all at home in our bedrooms . That now suddenly became more oppressive and we're like well , there's that young guy again . I might as well just listen .
When you started adding above your shoulder a subliminal message through a poster , I thought that was particularly creative . That was cool .
You are also doing a new podcast . Congratulations on its launch . It's called Tell Me More . Please tell us more about it . Why the launch ? First of all , what is Tell Me More and who's the audience for it ?
Thanks for referencing it . Isaac Colazzo is the lead researcher data head of SGR . Long , long career with Intercontinental Hotels , was a power user of the SGR data .
When he switched careers and we were able to pick him up , it was really , really a benefit to SGR because , as you can imagine , we have all the data , which also probably means we have most of the answers . The problem and the issue is to ask the right question . Isaac is very , very good at that . Now he has strong opinions , as do I , he and I .
In our bi-weekly calls about the weekly data , we sometimes prospectfully disagree . Stephanie Rico was like you guys are great . This is really interesting because we both pull data out of our data set and saying , but I'm seeing this and I'm seeing this and this may drive this , may not . She said , hey , we should bottle this . This is really interesting .
That's basically what this is . It's a vessel for us to , honestly unprepared , to riff on where we think the industry is , the data is , and where we think things are going and what strikes us in the weekly or monthly data .
The audience is really anyone who has an interest in where the industry whether hotel , the US hotel industry , I should say is today , anyone who could be an investor . But I think a lot of it is marketing revenue management focused .
That's a much more interesting background . Matt and I started this because it was just barstool banter and I didn't know we were being recorded .
Yes , I often secretly record Jeff and we decided why not turn that into an opportunity for fun and profit . Was there alcohol ? There's always alcohol , trust me .
Yeah , on your podcast you mentioned 192 APIS . Apis . I don't know Department of Commerce as a data source . I'm a travel data geek so I'm always excited to hear about new sources . Thank you for that one . What other non-STR data sources does an exec in a dominant travel data company monitor ?
So we know a lot about hotels , but hotels obviously is just one piece of the puzzle . So people ask us all the time about the Chinese travel . Where's the Chinese travel ? Is it coming back ? And so we can only look at the occupancy in coastal markets and say , well , maybe there's something there .
Luckily our taxpayers the Department of Commerce makes this I-92 APIS data available that tells you how many people fly , not just from country to country , from country into the US , but also by city payer . So you can see how many people fly from Beijing to San Francisco , from Rio to Miami . Super , super , super interesting . And so I dug into it .
I wrote a couple of articles for Coastal News . The other data set , of course that's super interesting is always the air DNA data . So Jamie Lane he's the head of research for air DNA is the smartest guy in that space , I think , and a guy I trust the most . When he publishes , I read it and the argument is always hey , not the argument .
But the question is or how does Airbnb or short-term rental data impact the hotel industry ? And we've gone back and forth and there are a couple of studies out there . I think you can make the argument that on the leisure side , yes , there's some bleed over , but the truth is I work for CoStar . I have to book through Concur . Airbnb is not on Concur .
I'm not going to be an STR customer if I travel for work , so there's a whole conversation that we don't need to get into . But for short-term rental data , air DNA , I think , is my go-to .
And then , honestly , the Department of Labor has really good data about wages and about how many people were still lacking to get back to quote unquote full employment that we have pre-2020 . And then there are just a bunch of other data sets that I stumble into or so , and we find something .
I normally just publish an article about it , just to share the wealth .
Last year at Hotel Data Conference , you led a breakout session on business travel outlook and recovery trajectory and it was very well attended and a lot of people took notice of it . Do you remember what happens in those sessions ? Do you remember what you get right and what you miss ?
Well . So I think what we said at the time is that we were fairly bullish on group and that we were also kind of bullish on corporate transient coming back . But and I think we got that probably half right so group demand continues to be a bright spot in the industry . Right , in June of 2019 , we sold 8.6 million group rooms .
In June of this year , we sold 8.2 million group rooms . If you listen to the Marriott earning call yesterday , they were like , yeah , forward booking data now is 14% up year-to-year what they have on the book . So I think group continues to do well . We're not obviously back to 2019 , but we can see the light there , the end of the tunnel .
On the corporate transient side , I think we saw a very rapid return and so we sort of extrapolated that line up and said , oh okay , that's pretty good . Well , it turns out that you or I have not been back in an office on a Friday .
Right , we may be working in the office three days or four days , but it's probably not a Friday , which probably means that this Thursday night is no longer really a business travel line and arguably a lot of people aren't in the office on Monday .
So Monday night is no longer a business travel line , so we're sort of crunching the amount of time that we have for business travel and clearly there are not room nights missing and so if you look at the top , 25 markets . if you look at the larger markets that have large downtown convention center hotels , they're still not back to where they were in 2019 .
Are they growing year-to-year ? Absolutely , but are they back to 2019 ? Probably not .
I can't believe . It's August . We're already well , well , well into 2023 . What can you tell us ? Can you give us a sneak peek ? I don't want you to give away all the stuff that might show up in your next breakout , but can you give a sneak peek at what your crystal ball is telling you for 2024 ?
So the house call is still for a recession in and we push it out . So now Q4 and Q1 of next year that is no longer consensus turns out . That used to be a consensus and that sort of eroded over time .
The macroeconomic data that continues to be published looks so good that people are calling this a soft landing , and actually I think the Fed is now saying , oh , no more recession risk .
We respectfully disagree , and our head of capital markets for CoStar gave an internal presentation that scared the pants out , honestly , and he was very , very clear that , hey , the term soft landing is used all the time , right before the recession , and he had , like these news clippings from the 70s and 80s and 90s , basically saying , look , this is when the word
soft landing was used by a major bank or by a major news outlet , and six months later when a recession . So we're not saying it's going to be a dire recession , we think it's going to be a very soft one two quarters , maybe 100 basis points from top to bottom certainly something we can lift .
So what that means , then , is that the back part of 2024 is going to look , comparatively speaking , better , because we're comping off Q4 of this year , which is already going to be a recession . So we're projecting continued ref power growth into the future , continued ADR growth into the future , just around the level of inflation .
So we'll know real rate growth , which of course hurts the owner's bottom lines . Right , if all expenses go up , you know , add inflation or more and your top line only grows a little bit over inflation , that will hurt your P . The good news is that we're not overbuilding . As an industry , we have a terrible track record of always overbuilding into the downturn .
This time around is different . The long run average of supply growth is called at 2% or so . For easy math , in June supply growth was 0.3% , a zero handle . So very , very few new hotels are coming into the market . There's a bubble in the in construction pipeline , the planning , the final planning phase . Of course that will resolve itself as interest rates ease .
But when is that ? Well , maybe towards the end of next year . So we feel pretty good about next year , but of course this is just a continuation of what we call normalization .
I wrote an article about that on the news now , you know , just saying look the people , the markets , the chance , skills that over index in 2021 , 2022 are now coming back to earth and the markets that under index in York , washington , minnesota , minneapolis are now coming back the other way , so they're getting more normal .
From the used to hurt , now they're doing better .
And the Pacific Northwest will stay terrible .
Terrible is a strong word . You know what I always counter . That is , you tell me what return to office looks like and I tell you what I think downtown looks like .
You know , if you were not in the office , if your office is on Park Avenue , you know I'm not going to fly to New York to meet with you in your kitchen and Hoboken , right Like we're just going to do this on teams or on Zoom . So if people aren't in the office in Seattle , business travel will continue to get to to hurt .
I saw an article in Skift a few weeks ago titled Travel is back , with an exclamation point , and I went on to say we can truly say that 2023 is the year travel has recovered . It got under my skin . I need an expert to rain me in here . So how far is occupancy below 2019 still ?
So for the first six months , year to day , June , occupancy for the US was 63% . In 2019 , it was 65.5% . The top 25 markets today it's just under 70 . In 2019 , year to date , it was 74 . So , yeah , we are still lagging . We are still absolutely seeing . So in percentage terms , that means the top 25 occupancy is down 7% . In total , US is down 4% .
Why is that ? Well , keep in mind that occupancy is a function of supply and demand and , of course , we grew new supply to the tune of 3% or so . So you have to overcome that . But at the same time , we're missing a lot of those corporate transient travelers .
The slide that I always use is the president of Delta saying , when he was asked in his quarter one earnings call , hey , talk to us about corporate transient demand . And he said well , you know , we're 85% of revenue , but 75% of volume .
I don't care about how much my Delta makes , I care about how many people they fly from A to B right , Because we're in B . And if he's saying , hey , corporate transient is up 25% , that's material . That's a lot of Tuesday , Wednesday , Thursday night travelers , business travelers who are not yet back . So is this the yield of normalization ?
Yeah , we're slowly getting there . Are we back ? No , Of course you can then say but look at Miami Beach and look at the Keys and look at Colorado . Yeah , of course there are markets that are totally outperformed because of the leisure room , but overall , as an industry , the occupancy is still . What is that ? 4% below where it was .
The hospitality media and the industry . They focus on that idea of normalization . But we go back to something and as much as they want that , they are kind of evolutionary and thinking it's like there is always a new normal . There's a new normal every quarter , every year .
Well , I think we see that on the on the room rate side , right , I mean the room rates , they're not going to go back to 2019 . You know they're up for the nation 17% , you know . For luxury it's up . I love the number , but like 25% or something , you know , are you really going to give that up ? I don't think so . You know what ? That 2019 normal ?
This is a new normal .
To that point , though . I think a lot of people look to the ADR growth , whether it's as a consumer and just seeing price increases , or a student of the industry who's hearing a podcast or a conversation like this and looking at figures .
At 17% , 18% ADR growth , inflation has been rampant and everybody knows it and feels it , and especially in the sectors that impact travel the most energy , food , labor . So , as we look at , you know , a 17-ish point increase in ADR over 19, . The inflationary pressures that wipes that straight out Absolutely , and so we're looking at basically inflation offsets .
Adr volume is still considerably down . I'm going to ask you will you join me on ? Here's my mantra these days . So I'm calling it 25 by 25 . This is ADR has to be 25% above 19 by 2025 to simply offset inflationary pressure . That's with a modest 2.5% increase over the next two years in inflation Very modest .
I don't think our industry can do it , given the headwinds we now face , at the same time as picking up another six points in roommates . Call me Dower . If we have an outlook , then that says 2025 , we are still going to be talking about pre-pandemic .
So if it's a mantra , I think we should all chant it . I thought you were going to go to stay alive through 25 . That's what a lot of the investors are just thinking about right now the owners who have to refinance the CMES that's coming due in there , their loans that are coming due .
I think your idea is saying we need 25% ADR growth compared to 19 in 2025 . I think it's probably going to be exactly on the money . The problem is what is inflation ? You're saying we want 2.5% growth right now . Is inflation going to be down that much by then ? Maybe , but it may still have a three-handle .
The last 50 or 100 basis points may be really really sticky , so that'll be super interesting to observe . I think your point is very well taken . We have to continue to look at the top line in order for us , as owners , to continue to have something growing on the bottom line .
What is the biggest question facing the hotel industry for the next decade ? Decade , yeah , it's only ended till 2030 . What's the hotel industry need to be ? What's the big thing out there that's looming that all hotel companies are going to have to deal with ?
I think two things come to mind we have to talk about climate change and we have to talk about resiliency in hotels , because when things go sideways with the weather , people look for shelter , and that's what we do .
We provide shelter , so we have to be open , so we have to have emergency generators and double internet and water resources and be able to get our staff in .
All of those questions about resiliency and so climate resiliency and just being ready when the weather strikes or if you have too much water , if you're too little water , like all of those questions , I think will continue to be very , very important and need to be talked about by the designers , by the owners , by the brands .
I think the other piece is the emerging middle class in India that will continue to travel a lot and I think we just want to be hospitable and we've got to be ready because I think they're coming and they want to come and I think we need to be ready to accommodate .
It's time for the mystery question to close out the show . Jan , you've traveled all over the world , but your heart always comes back to Nashville . For tourists who come to Nashville and there are plenty of tourists who come to Nashville what is an under the radar place that they should visit ?
So there are two cool activities . One is Hatshow print , which are those prints that I referenced that I buy at shows . You can actually make your own . You can go to Hatshow there , not open all the time or to sign up for it , but making your own Hatshow print is like the ultimate Nashville souvenir . I think that's super cool .
It's right downtown in the Omni Hotel . And the other thing is a museum that is spectacular . It's called the Lane Motor Museum . It's a car museum and nobody's ever heard of it and it is just a guy who has a lot of cars and they're spectacular and pristine and it goes from not quite a model team but basically all the way to today and to future cars .
And because I have a two , seven , seven , seven , they have an amazing play area car theme , as you can imagine , lots of matchbox and all that . But Lane Motor Museum is a sleeper .
Wonderful Gandolf himself has spoken everyone . Jan , thank you so much for being part of no Show and we will talk to you soon .
Thanks for having me , guys .