STR's Freitag discusses:
- Metrics STR uses to assess business travel demand
- The summertime demand slump
- Difference in hotel-tier performance
Hotel analytics firm STR's parent company, CoStar, and Tourism Economics earlier this month issued a new U.S. hotel forecast that lowered performance expectations notably for both 2025 and 2026 from their prior forecast, issued in June. STR senior vice president of lodging insights Jan Freitag in mid-August spoke with BTN managing editor Chris Davis about the company's view of business travel demand, corporate approaches toward hotel tiers and inbound international demand. Edited excerpts follow.
BTN: There's a pretty significant cutback in the August STR forecast compared to the one issued in June. What did STR see that led you to go that route?
Jan Freitag: We have seen a deceleration in growth. At ALIS [conference in January], we said that new administration's tax cuts should help corporate transient and should go through to the to the American leisure traveler. [Year-over-year full-year 2025 revenue per available room] growth was projected at 1.8 percent. Then at the NYU conference in June, we said there's a new administration but also inserted uncertainty because of the on-again, off-again tariff conversation.
That made some Fortune 2000 companies [wonder,] what do my input costs look like? How do I manage my bottom line? How do we manage travel? We still felt quite constructive but not quite as bullish. But still constructive.
But then here we are. The summer was not great. The outlook is not as positive. Specifically, international inbound isn't as strong, and the American economy is just, I use the term bumpy.
And so we're suggesting minus 0.1 percent [for full-year 2025 RevPAR growth, year over year]. I think that negative sign gives you a sense of where our head is, that the headwinds outweigh the tailwinds.
On the headwind side, we have corporate transient demand weakening because of that conversation about tariffs and the input costs for Fortune 2000 companies. If they have to manage their bottom line, one easy thing to cut always is travel and training.
BTN: Could you expand on that? What are you seeing on the business transient side that's signaling this softness?
Freitag: We talk about being in a bifurcated environment now with the upper end [of hotel tiers]—luxury hotels, specifically—are still growing and doing quite well. Part of that is leisure, but part is that high-end corporate business travel is still there. The C-suite is still doing its thing, and if you are in a in a pretty healthy company, you know that still continues to be, 'Oh, I have to be in New York,' and the room rates there are what they are. So, that continues to be quite good.
For upper-upscale hotels, the full-service boxes, there is some growth. But the group piece is a little uncertain. For the first six months of the year, upper-upscale occupancy is down 0.3 percent. Call that flat for all intents and purposes, but there's not a lot of pricing power: up 1.5 percent. For the other classes, where your road warriors drive to in a three-state radius—upscale, upper midscale, midscale economy—their RevPAR is [each] down for the first six months of the year, and it's hard to see a catalyst for that to change as the year progresses.
BTN: So lower-end corporate travel in those tiers is still suppressed?
Freitag: Correct. We're not breaking that out here specifically, and obviously the leisure part plays into that as well. But for business travel days—Monday, Tuesday, Wednesday and Thursday, versus Friday or Saturday—if those numbers are down, that implies something is not quite right in the middle of the week.
BTN: What other sort of performance indicators or metrics are you looking at to determine the business travel trajectory?
Freitag: We want interest rates to be lower for people to say, OK, now it's time to invest. We want unemployment rate to be low because that means corporations aren't firing anybody, and we want business sentiment to be positive and to be better than what it was to say we feel good about putting people out on the road.
BTN: What's the latest you are seeing on international U.S. inbound, and what differences in corporate and leisure?
Freitag: Tourism Economics says international inbound is down, and a lot of it is driven by Canada. … On the corporate side, note the Politico article with the head of Destination D.C., Elliott Ferguson, who basically said that we're losing groups not because the Americans don't want to come to D.C., but because the international part of those groups and association events are super skittish and nervous. We're losing groups to Canada, [because planners] know that international participants from academia or from corporations have an easier time getting in and there's not an implied risk.
I think that is going to hurt some association and corporate group demand going forward until there's more clarity around how the immigration and border protection services are handling those attendees.
BTN: Most of the big hotel companies have come out with second-quarter earnings, and some generally suggested corporate demand was more or less steady. Does that square with your assessment?
Freitag: Upper-upscale tier had 1.3 percent [year-over-year] RevPAR growth for the first six months. That's steady. You're not setting any new records, but it's slow and steady. You're losing some demand, you're getting some ADR, but not a whole lot. That sounds about right when they talk about their numbers.
BTN: STR president Amanda Hite in the new forecast said that "we've seen rate growth converge closer with demand." Why was rate growth not in alignment with demand previously, and what's changing that now?
Freitag: You can interpret that two ways. One is demand growth is muted, and ADR growth is muted. Unfortunately, we in the industry have always thought of ourselves as an inflation hedge because we can reprice every night. And the idea is that if inflation is 2.5 percent or 3 percent, whatever the number is, we should be able to get at least that [in rate increases]. That is not the case. We've been losing, certainly compared to 2019. I think we're 7 percent below where we were in 2019 in real terms.
The other way is that there's just slow and steady growth. You know, demand is growing a little and ADR is growing a little, and … because of the supply impact that mutes the demand impact, and the ADR gets us basically to zero.