STR's Isaac Collazo discusses:
- Key economic indicators of hotel performance
- The international inbound U.S. travel outlook
- Forecasting in a time of volatility
Citing a "more supportive" economic backdrop, CoStar,
the parent company of hotel analytics firm STR, and travel data company Tourism
Economics released a forecast
for U.S. hotel performance in 2026 that includes slight year-over-year
increases in occupancy, average daily rate. STR senior director of analytics Isaac
Collazo earlier this month spoke with BTN managing editor Chris Davis about
the companies' view of business travel demand, the limits of ADR growth and
whether there's a case for optimism for corporate travel buyers.
BTN: Your latest forecast held roughly steady from
November. What are the main factors driving that outlook?
Isaac Collazo: When I'm seeing the data, it's just
more of the same. We still have headwinds that we have to contend with in the
first half and specifically that would be the hurricane markets.
[Year-over-year hotel performance metrics have been affected by the boost in
occupancy by displaced residents and relief workers associated with hurricane
Helene and Milton, which struck the U.S. in 2024.] It's starting to abate, but
it is still a major factor. ... The first quarter we still think is negative.
By the second quarter we start going into positive territory, and then by the
third and fourth quarters, we should be back in the positive.
Obviously our forecast is not super positive at this point.
Nothing's really changed from last year to this year. What is the catalyst that,
all of a sudden, things are going to get really, really good? I don't see it yet.
I still see lots of pressure on lower- and middle-income individuals and
businesses.
BTN: What economic indicators are you watching most
closely for signs of change?
Collazo: Economically, continued reduction in the
U.S. Consumer Price Index and growth in wages. Where you see that divergence,
where one is going up and one's going down, that's the only indicator that the
middle- and lower-income individuals will have more discretionary money to
spend on travel.
What I am seeing is that delinquency rates continue to rise
on credit cards. That gives me an indication that people are really strapped,
and so until that all starts lessening, I don't think people have the funds to
travel as much as they did prior to the pandemic.
BTN: How is
business transient demand shaping your outlook?
Collazo: Last year we saw that midweek occupancy
actually fell. That was not a good trend, because we're still not at the levels
we were prior to the pandemic. CFOs are continuing to hold back travel because
of the changing economic environment. I don't see transient changing much more.
I think it'll continue to grow, but very, very slow growth.
To me, transient was the industry's base business, and it's
never returned. Leisure is not a 365-day source of business, but business
transient was. Until that really gets firm, I think we're going to have the
variations in weekly and monthly performance that we've seen since the end of
the pandemic.
Last year I thought it was going to grow, and it didn't. I
do think it will see some growth this year ... not that anything's better than
last year, but maybe people are more comfortable with the uncertainty that's in
our economy now than before.
BTN: Some of the big hotel companies in their quarterly earnings calls sound reasonably
optimistic about 2026. Does that align with what you’re seeing?
Collazo: It's
reasonable, because we're optimistic. If that's the only barometer of optimism,
we're showing growth. We're not saying, 'Oh my God, it's going to be a horrible
year.' It's just degrees of optimism.
What we'll all disagree on is, how much growth? Will we have
greater than 1 percent RevPAR growth? Maybe. We do have the World Cup as a
tailwind. The [holiday] calendar shifts are a tailwind. There is room for
optimism.
But I still think what to watch is middle- and lower-income travel
purchase behavior. Upper-income is doing fine, and business transient will see
hopefully some growth this year [even if slow]. So the [element] that we're
still missing is that middle and lower tier.
BTN: Hotels have been able to hold the line on rate
growth throughout all this, even as occupancy has leveled off or even declined.
That continues in your forecast. Is there a limit on hotels' ability to do
that?
Collazo: Most of
the growth in our forecast is ADR-driven, but it is ADR [growth] below the rate
of inflation. As a hotel owner, I'm not very excited about that because my
costs are still rising. Total revenues, including room revenues and F&B
revenues, are rising at a softer pace than expenses. We're still going to have
downward pressure on margins for owners. It's still not a great environment for
them.
Only 30 percent of hotels had RevPAR growth at or above the
rate of inflation last year. There's still a lot of pressure on owners.
Our forecast has ADR and RevPAR for the next three years
growing at less than the rate of inflation. Yes, ADR is rising, but it's not growing
like it should given the inflationary environment.
BTN: How do you
see international inbound travel playing out in 2026?
Collazo: I think
it's still going to be a difficult year for inbound, but I do think we're going
to go back up. I do think we'll see some increase. We do believe we'll see
higher-income individuals come in for the World Cup. What I worry about is
those casual travelers that may have a very difficult visa process.
The flip side is that outbound travel has been increasing
dramatically. That's been to the detriment of our industry. The question is, do
they stay home for the World Cup or do they still go outside the country? It's
just a crazy time.
BTN: Given how volatile everything has been of late, how
much more difficult does that make your job as a forecaster? How do you account
for these times when change comes so rapidly
Collazo: We
don't. We can't. There's no way to put that into a model. A tweet can change
everything. I've been in this industry for 30 years, been in forecasting
forever, and it was never that volatile.
You cannot forecast any of the weather stuff. You can't
forecast any changes in policy. You can create scenarios about GDP not growing
or inflation going higher or lower, but beyond policy, no.
This has been the hardest forecasting environment ever. We
never anticipated the post-Covid surge in leisure travel, what being pent up
would do to people. And, vice versa, we couldn't have seen what happened last
year in the policy side.
There's just no way. It's a forecast. If I could see the
future, I would have an island.