Hotel data people: prepare for enlightenment as we sit down with Jan Freitag, CoStar's National Director of Hospitality Analytics. How does 2024 look? Why is occupancy still still trailing 4% below pre-pandemic levels? What data sources does he use? What's his new podcast about? Is he actually a wizard who can predict the future? YES.
News you can use:
https://www.costar.com/
https://str.com/
https://www.trade.gov/data-visualization/apisi-92-monitor
https://www.hatchshowprint.com/
https://www.lanemotormuseum.org/
Hotel data people: prepare for enlightenment as we sit down with Jan Freitag, CoStar's National Director of Hospitality Analytics. How does 2024 look? Why is occupancy still still trailing 4% below pre-pandemic levels? What data sources does he use? What's his new podcast about? Is he actually a wizard who can predict the future? YES.
News you can use:
https://www.costar.com/
https://str.com/
https://www.trade.gov/data-visualization/apisi-92-monitor
https://www.hatchshowprint.com/
https://www.lanemotormuseum.org/
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.
Jan Freitag: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.
Jeff Borman: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.
Jan Freitag: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.
Jeff Borman:When you started adding above your shoulder a subliminal message through a poster, I thought that was particularly creative. That was cool.
Matt Brown: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?
Jan Freitag: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.
Jan Freitag: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.
Jeff Borman: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.
Matt Brown: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.
Jeff Borman: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?
Jan Freitag: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.
Jan Freitag: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.
Jan Freitag: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.
Matt Brown: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?
Jan Freitag: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.
Jan Freitag: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.
Jan Freitag: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.
Matt Brown: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?
Jan Freitag: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.
Jan Freitag: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.
Jeff Borman:And the Pacific Northwest will stay terrible.
Jan Freitag: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.
Jeff Borman: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?
Jan Freitag: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.
Jan Freitag: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.
Matt Brown: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.
Jan Freitag: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.
Jeff Borman: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.
Jeff Borman: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.
Jan Freitag: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.
Matt Brown: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?
Jan Freitag: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.
Jan Freitag: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.
Matt Brown: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?
Jan Freitag: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.
Matt Brown:Wonderful Gandolf himself has spoken everyone. Jan, thank you so much for being part of no Show and we will talk to you soon.
Jan Freitag:Thanks for having me, guys.