Business travel is slow to recover but is forecast to reach 2019 levels next year

NASHVILLE, Tenn. – Hotel demand from business travelers, which has been the slowest in the U.S. hotel industry’s recovery from the COVID-19 pandemic, will return to 2019 highs by the end of next year, Director of Hospitality Market Analytics at CoStar Projects Daryl Cronk.

During a data presentation at the 2022 Hotel Data Conference, Cronk said three factors are contributing to the slower recovery in business travel demand: company work-from-home policies, executives reassessing the value of business travel vs. teleconferencing technology and a broader economic slowdown.

“The American Hotel and Lodging Association … estimated that hotel revenue from business travel will be about $20 billion less this year than in 2019,” Cronk said. “No matter how strong the leisure recovery is that we keep hearing about, no matter how well leisure continues to do, we can’t consider travel fully recovered when we’re leaving $20 billion on the table. We need this traveler back.”

There are signs that the business travel recovery, while still stalling, is picking up steam, he said.

“In a recent survey by the Global Business Travel Association … three things stood out to me about business travel. One, the vast majority of American companies are traveling again. They’re back on the road, maybe not at the same frequency or volume as before the pandemic, but businesses are traveling again,” he said.

“Secondly, COVID is no longer the most important factor in the business travel decision. Staffing challenges and price or inflation are now considered more significant factors than COVID when it comes to making business travel decisions. And third, meetings this year will make up a larger portion of business travel budgets than before the pandemic.”

Cronk said CoStar’s forecast that temporary business demand for hotels will recover by the end of 2023 is based in part on the belief that business leaders will again recognize the value of face-to-face meetings with partners and customers. Also, as the U.S. economy grows, he said, businesses will hire more people who will travel.

Business travel is almost certainly changing.

CoStar and its hospitality analytics firm have traditionally measured business travel demand by geography and day of the week.

“Most of the business travel is to an urban location … and then in the middle of the week, Monday through Wednesday, those are your traditional heavy business travel days,” Cronk said.

Year-to-date, the occupancy gap to pre-pandemic 2019 levels is larger in both urban and midweek hotels.

Hotels in “urban locations are trending in the right direction, but still had the largest shortage or gap in 2019. We can dig even deeper within urban destinations and look specifically at central business districts and again, we see the same model. Any area that is heavily dependent on business travel is lagging behind the overall recovery,” Cronk said.

While “weekend demand has essentially fully recovered – and in fact, in the fourth quarter of last year weekend demand was above 2019 levels”, the lower midweek hotel demand indicates that business travelers are booking more few rooms, he said.

But another interesting trend in the weekday data holds some hope for hotels that depend heavily on business travelers.

Traditional shoulder days – Sundays and Thursdays – “have recovered almost as quickly as weekends, [and] certainly recovered faster than weekdays,” Cronk said.

Part of this daily demand comes from increased leisure travel that combines business and leisure.

The flexibility of remote work, which has also been cited as a headwind for business travel, is enabling some of those travelers to stretch their weekends to three or four days, he said.

Shifting company policies away from requiring employees to work from home to allowing remote work may actually help demand for business travel for hotels.

“Even if you don’t want to go into your office because of remote work opportunities, you can still choose to travel. So we’re seeing occupancy in those central business areas increase even as office occupancy is down,” Cronk said.

Chase Oeser, regional sales manager at STR, said in a separate data presentation during the conference that during several weeks in June, Sunday and Thursday hotel occupancy actually matched Friday and Saturday occupancy.

“I think we’re going to continue to see what defines the ‘new business traveler,'” Oeser said. “We are still seeing how it will play out. We have seen Sunday’s percentage [of occupancy] increase significantly in 2020, especially in the second quarter.”

Some business trips also come from groups.

Cronk said that while data from TripBAM shows that corporate travel bookings “are still about a third below 2019 levels… June group demand [for luxury and upper-upscale hotels] it was only about 5% below June 2019, really close to pre-pandemic levels.

The real test will come from hotel performance data in October, “once we get into the fall when leisure travel goes through a seasonal slowdown and we see what’s left and how much of it is really a recovery on business trips,” he said.

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