CBRE's Rachael Rothman discusses:
- Preliminary second-quarter performance
- The relationship between productivity and travel demand
- The state of corporate group demand
CBRE Hotels Research in its most recent forecast softened its projections for U.S. hotel performance largely due to a weaker macroeconomic outlook. CBRE head of hotel research and data analytics Rachael Rothman earlier this month spoke with BTN managing editor Chris Davis about CBRE's assessment of business travel demand, the key economic indicators that reflect corporate demand, and in-city hotel demand dynamics. Edited excerpts follow
BTN: How do you assess the overall state of hotel demand right now?
Rothman: Our next forecast won't come out until mid-August, but we have preliminary second-quarter numbers. I think the second quarter came in about 20 basis points weaker than we thought, within striking range with what we were expecting. At the margin, I would say that things maybe are slightly softer. It's a little bit hard to tell because we're in the peak summer travel season, which is largely leisure, and that's what would exacerbate the disconnect between inbound and outbound international travel. That has less to do with business travel, but it could just be that this sort of disconnect in summer holidays is leading to the slightly weaker than expected fundamentals.
BTN: Do you have any sense of business travel demand, in the second quarter and for the balance of 2025?
Rothman: Looks like it's kind of flat. I have been listening to what the airlines have been saying [in second-quarter earnings calls], and they're talking about a recent pickup in business travel, particularly at the premium end. But overall the fundamentals are pretty flat.
BTN: What are the performance indicators you are looking at to determine the business travel trajectory?
Rothman: Employment, because what we're seeing right now is fairly strong [U.S. gross domestic product] growth. Employment is up but it's not up as much … which suggests that we're having productivity gains. Productivity gains can be great for corporate profits, but they aren't necessarily strongly correlated with increased travel. We need more events, more employees, more travel.
It's great to see that the economy is doing well, but to the extent that that's fueled by capacity, utilization, efficiency and technology enhancements, they correspond a little bit less to increased demand. But broadly speaking, the drivers of demand on the corporate side are business confidence, corporate earnings, any pro-business policies with respect to a reduction in taxation or policy changes, and then, of course, business sentiment.
BTN: You mentioned international travel before, what's the trend in that segment?
Rothman: The most recent data that's available is for June, and what we saw is that outbound international travel is up 0.5 percent. That's the softest it has been, but it's still growing, and it's growing off of record numbers. Inbound is down about 3.5 percent. So there's a gap, and inbound is running at about 80 percent of 2019 levels, and outbound is running about 122 percent. Just think about how wide a disparity that is.
With respect to business travel, another thing that we see is that the outer ring of the central business district—I don't mean suburban, I mean not necessarily the core CBD—is outperforming the CBD. And the reason is, imagine that if you could stay someplace that might've been a 15-minute walk away, where historically you would not have been willing to make that walk, now you'll hop in a rideshare. If the [further out hotel] rate is half the rate [as it is] across the street from your demand generator, you'll say, oh well, I'll just stay a five-minute cab ride away.
BTN: Is the increasing availability of ride-hail fully driving that?
Rothman: That's the thing: distributed technology, so it's not just about the transportation. It's about, for example, if I had previously stayed at a select-service hotel that might not have had a food and beverage outlet that was in walking distance, now I can bring that food to me very easily. So not only can I go out, but I can bring services in. I think that is shifting where people stay.
BTN: Do you see any difference in that kind of behavior in, say, SMEs versus large corporates?
Rothman: We don't look necessarily at their bookings. We're looking at it through the hotel side, but all of the globally recognized hotel brand families have so many brands now. Even if I'm a Fortune 100 company, I can negotiate my price point throughout all of those brands. They've really expanded their opportunity set in a way to grow their total addressable market, which is smart. And the loyalty programs have proliferated so much. For the guest, sometimes getting a night at a select-service or a tier below luxury or upper-upscale is fine, as they're still getting that credit, it's still breeding the loyalty, and it's still keeping them within the system. So the abundance of choices allows companies of all sizes to target what's most appropriate for their budget.
BTN: Some hotel companies, at least in Q1, have been bullish on group, including corporate group and meetings. Has that continued? Is there a reason to be bullish on that particular segment?
Rothman: It's been decent. It has not seen the growth that it had seen the last few years, that makes sense. It came really strong out of Covid, but it has held up fairly well. I think there can be pockets that were types of meetings that were dependent or had a large number of members from overseas, and those maybe have struggled a bit more as the visa process has become more challenging.
Like all things in hotels, it's very local. A convention center in Phoenix could be doing very differently than a convention center in New Orleans than a convention center in D.C. We make local decisions and have local market experts because [while] I love thinking about the big picture, in the end we have to do due diligence every location on its own merits.
BTN: Speaking of the big picture, how much do the quick changes to economic policy affect the ability to forecast?
Rothman: You bring up a very good point, which is why we provide our clients five scenarios. Because the other thing that can happen is that our base-case scenario might not align with the client. They could be more bullish, less bullish. They could have a different view on the macro, on employment, on [Consumer Price Index], on public policy, whatever. And so we provide them with five scenarios, and they're able to probability-weight those scenarios as they see fit in a way that aligns with their corporate view. Because we have our house view, I'm sure they have their corporate house view, and they want to remain consistent with what their corporate house view is. So we don't just provide one outlook, we provide five, and then we allow them to toggle between them and probability-weight them as they view appropriate.