Are major hotel brands taking over the world? Does office attendance directly correlate to hotel occupancy? What's the worst day for occupancy at hotels? And how do you handle travel to places that have recently experienced a disaster?
Are major hotel brands taking over the world? Does office attendance directly correlate to hotel occupancy? What's the worst day for occupancy at hotels? And how do you handle travel to places that have recently experienced a disaster?
Fall is here and it's a temperature. Check on the state of the industry. Hi everybody, it's no Show. I am Matt Brown, joined as always by Jeff Borman. As usual, I am going to pepper you with questions of which I have no idea what the answers are, and you are going to act as an oracle of light and truth. One thing I would like to start with that is very broad is well, first let me back up and say that you recently did a presentation about the state of the industry.
Matt Brown:I think one of the things that I noticed as I was going through it is I feel like you have a disdain, maybe, for the hotel industries and travel as a whole. They have this love of numbers, love of statistics. All industries do. Certainly the hotel industry particularly loves stats and they love numbers. But there can be sort of a I don't know if I call it a creative license, but you oftentimes feel like hotel experts quote unquote are kind of pulling numbers out of there. But is that an accurate statement? Well, matt, other than you, of course, your numbers are beyond compare.
Jeff Borman:So let's go with this. Matt, you've never said numbers don't lie. That was the biggest lie of them. All right, you can make anything, say what you want to, or find a figure that will support your narrative. If that's your aim, if that's the kind of presenter you are, then you can do that and there's really no obstacle to it. You can also interpret things in a lot of different ways, and this is going to be a really boring podcast if I qualify everything.
Jeff Borman:Yeah, I think a lot of numbers come out of our asses being part of it. I think that got exaggerated during COVID, significantly exaggerated because the industry got it didn't just get a black eye, it was down for the count, it was at a. The industry barely made it up from a nine counts, the boxing match that happened. We got the ever loving hell kicked out of us, and so, because of that, I think there was a far greater degree of willingness for people to accept good news. Green shoots ah, ah. It's all bad, but not that one right there, not that one. I see a good number, I see a good one, and everybody could just kind of rally around. It's not horrible, it's not. The world's not collapsing, and as we're years and years away from just searching for good things to say. I think the narrative in the industry is less truthful. Frankly, it's not back and that upsets me deeply. When I hear articles. You hear people executive speak and articles titled the industry has fully recovered is absolutely, categorically, totally false.
Matt Brown:What else did you talk about here? Recently, you stated that hotel brands are taking over the world. What does that mean?
Jeff Borman:You know, the amount of supply has not changed considerably. I mean you could look in certain markets. Right Hotel has gone through a boom, new York City huge supply boom in the last 10 years. The comments that I was making with you offline was more Global. And so, while total supply globally is only increasing at a very reasonable amount over a 10-year period, the percent of that supply that's represented by the biggest brands you married Hilton, ihg, choice, right? I really should have looked this up, you should plan, you should ask me these questions in advance so I can get real numbers. But let's say that the brands represented 15% of that global supply 10 years ago. They're now at like 20, 25%. Again, don't quote those numbers. That's the kind of growth they're taking over more and more and it comes through two things. We have three, I guess. First is conversions.
Jeff Borman:A lot of independent hotels massive more than ever have found the value of joining a brand during the COVID period to be too attractive to resist. So, for example, you're an independent hotel in New York City. Your business levels in the city meant that you could comfortably run 85% occupancy all year, even with a no-name brand. Right Independent, not recognized, no big chain affiliation, no loyalty program, you could run 85% occupancy because New York City itself was so busy and compressed. New York City is no longer that busy and compressed and so those bookings are diluted as total occupancy drops. Now, as an independent, without having the benefit of a loyalty program and a big, major, huge brand behind you, you're running 60% off. There's not that spillover effect. That fills up the independence that, along with better purchasing power, right? Arne Sorensen famously said that an independent hotel paid a dollar for the toilet paper. Yesterday they joined the autograph collection and now it costs $0.70, just because of the purchasing power of Marriott, right? So you've got all of these benefits that big chains and the scale they offer bring to independence. And so there's been a flood of hotels that have gone from independent into brand umbrellas, mainly under soft brands like autographs and curios and stuff like that.
Jeff Borman:The second part is construction pipelines, and this is a longer trend. But new developers they want to develop with a brand. It's a less risky proposition. I'm going to build a 200-room hotel. It's going to follow some specs. It's basically like a hotel in a box, if you want to home too, because I think that's the brand that's got the most hotels in the pipeline in the US under construction. Here's the blueprint, go, build it, and here's your return. And if that thing isn't really accurate, right, just follow the plan man. So because of that, there's a huge swell of the pipeline that is now just purely totally dominated by the biggest brand chains.
Jeff Borman:I think the third part of that matter is globally. The brands have greatly increased their presence and I think you see this through acquisitions that these big companies have made, but also the development, as let's take it, over the last 15 years in China, let's say Last 20 years in China, there were probably 25 Marriott hotels 20 years ago in China and today there's 300. Again, I don't know those numbers to be totally accurate, but the scale illustrates the reality that's out there. Hilton, let's call it, at the turn of the century may have had a presence in 70 countries. Now it's 110. So globalization has also made this happen, where the brands have gone out of their local parochial backyards and spread to every single corner.
Jeff Borman:And if you're a developer of a hotel in Argentina 20 years ago, you probably didn't even think much about a Hilton or a Marriott. There were only two or three in the country. It wasn't the top of mind. Today, if you're a developer in any country like Argentina and you name your country, you have to be at least considering a major brand for the project. So brands are taking over the world. I don't know if that's a good, bad statement, but it's absolutely true.
Matt Brown:I saw something recently that compared office attendance to hotel occupancy and I think on the surface this makes a lot of sense, but something I've never really thought about before and that there is a direct correlation between the two. The depression in office occupancy, particularly in markets like New York, has a real effect on surrounding hotels. Is that something that's borne out in your research?
Jeff Borman:Completely borne out. I just wouldn't say it's my research, but there's plenty of it. There's a company called Castle with a K that measures office space occupancy. There are a couple others, but they tend to be the one that I see the most publications from, and two people that we've had on this show. Ryan Melaker, refers to them in every one of his quarterly updates, and more recently we had Jan Fratag from STR or CoStar join us. I love the way Jan said it If you give me the office occupancy, I can predict your business travel volume.
Jeff Borman:And so when STR did a really cool graph at their conference in early August or they released it in early August and it takes the top 25 markets in the US and plots them based on office traffic on the Y-axis and hotel occupancy on the X-axis, and what you get is a very, very clear line, a plotted graph of markets. So the market that has higher hotel occupancy and higher office leasing change are the same market Miami and these are compared to 2019. The market that has the biggest drop in office leasing change San Francisco almost 50% down and its hotel occupancy down 30 points. It is the lowest in both of those and if you look along that path it falls, with maybe two exceptions, two outliers. So 23 of 25 top markets exactly follow that correlation. The two outliers are Phoenix, in part and mostly driven because they have the Super Bull this year, and Nashville, where there's still, despite massive supply growth in the last 10 years, it still continues to outgrow be one of the best growth markets in the US period.
Matt Brown:That's because every bachelorette party in the world goes to Nashville. You go to Nashville, Savannah, Charleston, New Orleans, even if you don't live in the South.
Jeff Borman:What I just learned actually is that Phoenix, and Scottsdale specifically, is the West's bachelorette capital. So you're right, the outliers are Phoenix and Nashville, the bachelorette party capitals of America.
Matt Brown:Is there an unspoken, or perhaps spoken dread amongst the hotel industry that business travel is not coming back?
Jeff Borman:I'll speak for me. Yeah, it's terrible. I don't see and this is a place I've been quite frankly pretty pessimistic and for a long time about it, mainly because once CFOs big company CFOs once they got all the savings of cutting their travel budgets to zero, they were never going to let it get back to 100% again, totally.
Matt Brown:I always feel like it's not the big trip to the West Coast or the East Coast where we're going to go out, and it's going to be a retreat, and it's going to be three full days Great, you guys go do it. Get in the room together. What it feels like it cuts away at are all those little micro trips New York to Boston, atlanta to New York. You need to do a three hour meeting on Monday and then I'll fly back that night. I think those are the ones that have gotten axed by Zoom and by any other mechanism that you'd use to talk online.
Jeff Borman:Big meetings are still down. We've shifted a little bit from business travel to group travel. They overlap, they're not the same, but the big meetings are still way down. I think it goes to what you're saying, where the trip purpose has to have ROI. More than ever before, the fact that I'm just going to go someplace for two days of meetings is no longer good enough to go. Do that. Why are you going? I'm going to sit in this meeting room. What are you going to learn? Some tips and tricks. You're going to socialize Press flesh. There's no ROI in that. Forget it. Instead of sending 10 people to that conference, we're going to send five.
Jeff Borman:Meeting sizes have decreased, which is a big part of that Business travel. Likewise, you can see, monday is the day that of. If you compare each day of week to 2019, monday is the least recovered, meaning the occupancy that it used to run across the US to the occupancy Monday runs now across the US. Part of that is because nobody goes to the office on Monday. Even in these hybrid workplaces, people will be there most likely on Tuesday, wednesday, thursday. The idea that you're going to travel, be there four meetings on Monday well, if you go to that office to meet somebody. There's no one there.
Jeff Borman:Thursday, interestingly enough, though, has also been forever altered by the work from home or the work remote stuff where people are. You know, belizeer is a term we can't seem to get away from, but that Thursday used to be a real tough night to fill. For hotels it's now one of the busiest nights of the week, because you do get that overlap now of business travelers who are still there on the Thursday night, lingering from the Thursday work, staying into the weekend, whereas before it was much more likely to take off. One of the more interesting numbers I saw this was at GBTA. We know that people are traveling for multi-trip purposes. In a single trip, the Belizeer stuff right Work sends me and then I stay. The most interesting one add-on fact to that 79% of the people who extend their trip or arrive early either way stay at the hotel that they were booked into for the work purpose. I thought that was fascinating. People aren't moving around.
Matt Brown:So, in light of all that information, what markets benefit from this in the US and what markets don't?
Jeff Borman:All the chatter that gets under my skin about the industry's back, not even close. Only six markets are up 20% to 19, which is really just enough to offset inflation right now. So of the top 25 markets in the US, 20 are not nominally recovered, nor are they in real ADR either. What are the six markets? Vegas, san Diego, orlando, phoenix, which you might even be able to make a case that's an outlier because it's Super Bowl but it's in there Tampa and Orange County, Todd Sunbelt nothing north, Nothing in the north.
Matt Brown:One day, Twin Cities will come for you as we're moving closer to 2024, what should hotel people be thinking about?
Jeff Borman:I'm not particularly bullish on 24 or five. I think the headwinds facing the industry are pretty severe. In terms of business, travel is not going to recover in that timeframe to 19,. If ever, large conventions are not going to be as good for the foreseeable future. If you count the number of citywide conventions going on in America not up to what it used to be, if you count the size of those, it's down. The major drivers, those two major segments are still going to be a headwind for the industry.
Jeff Borman:The economics don't favor leisure travel the way it did during COVID. There were a lot of handouts during COVID. A lot of people got free money and a lot of people spent that free money on leisure luxury travel. I think that's normalizing Not that I think so. It is normalizing. You don't have that tailwind. You talk headwinds and tailwinds and headwinds and tailwinds.
Jeff Borman:In the end I think we're next 18 to 24 months. It's going to be a slow slug because we've realized as an industry a lot of the recovery momentum but we still face a real tough time GDP. I love to quote it's one of my favorite quotes I've come across, sean Dubrovic we are one month away from a recession. For 18 months we've been one month away from a recession. Next month we will be one month away from a recession.
Jeff Borman:I think there's some fatigue around that, where people are just hitting a malaise of it's not getting any better. If you look at consumer sentiment, it's as bad as it was during the worst days of COVID, which is amazing. How can that be? But you ask people how you feel when they're feeling like they did in the early COVID days. That concerns me. There are some good things going on out there, which is normalization and stabilization means. As an industry, things will be more predictable in 24 than they were in 23. Even if it's not that much better, they'll be predictable, and that in itself has advantages. You can do better business planning. You can plan your cost allocation, your capital allocations, you can do pricing better, right Everything from a more accurate forecast and understanding what's about to happen and you run your business more effectively. I think we've got that in our favor.
Matt Brown:We also wanted to talk this week about a pretty sensitive topic which we've been discussing a lot over the last couple of days, and we wanted to share our thoughts and hopefully share those thoughts with some empathy and understanding, but then also some practicality, frankly, and namely when can you visit a place that's recently had a disaster? It's tricky because there are safety concerns for the traveler, there are logistical concerns for the place ie are more people helping the logistical flow of emergency management and perhaps the most complicated element, which is a queasiness in spending leisure time in a place that has recently experienced pain. We are recording this the second week of September, so the anniversary of 9-11 is, of course, fresh in our minds, and this is just days after both the earthquake in Morocco and the floods in Libya. And it's very top of mind because in 10 days, jeff and his wife Heather were scheduled to go to Morocco. Jeff, what's kind of been going through your mind over the last couple of days as the story has been spooling out?
Jeff Borman:I'm extremely disappointed not to go on the trip. I think we're 99% decided, or decided for us, that it's just not going to happen. We were scheduled to go to the High Atlas Mountains, which is the epicenter of where the earthquake took place. Roads are not passable, like you said. Emergency crews and resources are being directed to things other than guiding around American tourists who want to go on a hike. To some degree. We're being advised. It's just not practical to go do that, and so we're going to listen to that advice.
Jeff Borman:But it pains me to listen to that advice because I feel very passionately about going to a place spending your tourist dollars. It bothers me when a disaster of any kind comes and goes, but the hangover because people associate the place with that natural disaster can last months and even up to a year or years. It's exactly when you should go If you care about that place, if you care about the people and the value that tourism dollars bring to these local economies. The restaurant tours, the hotel years, the small shop, the housekeeper who doesn't have work because you didn't go In a time of disaster. That's when you absolutely go. So it really pains me to say that I don't think we're going, but we're going to follow the advice that we're being given by the people in Morocco who say it's not the right time to be there.
Matt Brown:We're confronting this issue more and more and more. As the world becomes more mobile, we have to navigate a sense of timing in ways that maybe previous generations didn't have to navigate, and there's no easy answer to this. I think, leading with empathy, listening to not just the government, but maybe reading and hearing as many stories from the people who actually live there, not just the business owners even though I think those are valid voices to listen to as well but to listen to the population and take your own temperature check of what those situations are before you commit to going there. Or, as is often the case, is following through on a commitment For trips like Morocco.
Matt Brown:Amanda and I we honeymoon there five years ago and it's a beautiful place. It needs to be visited by everyone. It's incredibly friendly people, beautiful sites and I think we just want to support that place as much as we can, and travel can provide a legitimate way to do that. All right, let's go with this in the mystery question as a way to get people thinking about going to Morocco at some point when they feel comfortable. What was the place that you were looking most forward to visiting?
Jeff Borman:The high Atlas Mountains, precisely where the earthquake took place in Marrakesh, which I cannot wait to go visit. I don't expect there to be incredible natural beauty cultural enlightenment is what I would really expect in that part of the trip but being perched up in the high Atlas Mountains and gazing across barren landscapes like I've never seen before that to me that was going to be special. Yeah, it's a tough question because I really didn't have a single part of it. There's a town called Esoara. It's a small beachside town and I thought that could have ended up in the back of my mind. That was going to be the best, I just didn't know why. A somewhat sleepy Moroccan coastal town and also one, actually, where I was given guidance that you can really explore on your own. It's small and safe and it's comfortable enough that you can be really, truly into the fabric of Moroccan culture and people without having to be handheld or looking over your shoulder at all. I'm actually mad. I think Esoara was probably the place I was most looking forward to.