Why the Hotel Market Keeps Defying Expectations

Glenn: [00:00:01] Hey, everybody. It’s your hospitality friend. Glenn, thank you so much for tuning in today. You read the description. So, you know, we’re going to be taking a look at the current state of the hotel market and how that construction pipeline is going to be affecting how you’re doing business out there. So a little mid-summer temperature check, but we couldn’t make this happen without our good friends over at active Activo. Remember, they give you the power to profit. Please check them out@active.com. All right. No more delay the moment. We’ve all been waiting for the triumphant return of Bruce Ford, SVP at Lodging Econometrics. Great to see you, bro. How are you today?

Bruce: [00:00:34] Good to see you, Glenn. Glad you have your feet on the ground at least for 23 minutes. You know, it’s lucky number. But fact is, is that the industry is feeling pretty good right now.

Glenn: [00:00:46] I don’t, I don’t know, I don’t get it.

Glenn: [00:00:50] I’m confused. Everything I’ve known in my entire life up till now has been thrown out the window because a year ago, I was sitting here going, hey, it’s all over. It’s all over. We’re done for, cooked Over. But no matter how much evidence I see out there of all of that really happening, the opposite seems to be true. So we’re going to talk to you a little bit about trying to uncover what is actually happening, and then talk about how that affects the pipeline. So what’s your overall vibe, man?

Bruce: [00:01:20] Well, there was probably based on forecasts that were coming out in the first quarter of 26. The World Cup actually was probably a little bit better than expected. We saw some international arrivals. We saw the tearing of really the travel, which was around kind of the knock around the group stage. And then once we got through the knockouts down to 16, it picked up again. In fact, is, is that those World Cup cities will pull the operating performance up for the entire country, but it will be mostly driven by rate. We certainly heard plenty about the occupancy not being great. The occupancy was soft largely because of the international arrivals, but also those international arrivals, they just stay longer, they spend different. And as a result ADR was strong, particularly on what they call match days, which is the night before and the night of. So it’s a two day window. If you are an international arrival, you might stack a few of those on top of each other. And, and you’re therefore occupying a room for longer. But as Americans, exactly what we talked about, Glenn, we travel a shorter period of time, we pick a more economic hotel and we’re in and out. And that’s and that’s and that’s what happened.

Glenn: [00:02:50] Yeah, next week I’m doing a seven day vacation in four days in and out.

Bruce: [00:02:56] I don’t know how you do that. Are you going through a cloning machine?

Glenn: [00:03:02] Yeah, I don’t know. All right. So the event experience is up, so I’ll be curious to have this conversation with you at the end of July next year. When we say see performance averages and see how things change from this year’s event bump. But generally speaking, Bruce, we’ve seen this trend over the last X number of years that people really will travel for events. It was brighten our faces during the Taylor Swift tour days. And I see that happening for a lot of music and festivals and food and beverage types events as well. But other elements aren’t doing as strong

Bruce: [00:03:36] Keep in mind that you have country turning 250 this year. Yep. You now have all the concert tours that are beginning later this year because of the World Cup. So those stadiums are open. You’re seeing more arenas be used largely because the stadiums have been unavailable and we’re seeing training camps start for the NFL. So we’re going right to the end of summer activities. Yep. And so leisure has been good. That experience or luxury experience travel, probably performing a little bit better than expected. And of course, everybody wants to talk about how good luxury is right now. And there are a number of elements for that. But the next generation, Glen just simply travels differently than you and me. You know, we want to take our two weeks off every year, but they want to have a loaded week where they get on a plane every other year kind of thing. So it’s a little bit different. And obviously they’re building demand building hotels around that difference. The meetings being up, you know, certainly having those events here in the United States and using some of those event spaces again, was a direct correlation to the meetings being up, but also for future bookings to, as you had many CEOs and many high level executives enjoying these hotels and saying, maybe we should just come back here, you know, and so we got a little bit of that as well. What has been a little bit soft is the business travel. Of course, you know, it is the summertime. It is a little bit soft conference attendance, not awesome.

Glenn: [00:05:19] But that being said, man, anecdotally speaking, there’s more conferences than ever, at least in our sector over the summer. It wasn’t all that many years ago, man, would we be hanging out in the backyard for 2 or 3 months straight. Now I’ve got event break, event break, event break almost every other week, all summer long. It’s wild.

Bruce: [00:05:38] Well, you’re into a group of conferences that are really not industry wide. They’re kind of company wide. And I think that those always happened. I just think you’re maybe a little bit into that more than than usual. But certainly getting together is a prominent feature of many companies business plans. And that’s because we just have more remote workers today. We don’t get together as much as we used to. And so as a result, we got to have one of these meetings. Right?

Glenn: [00:06:10] All right. Now, now, Bruce, on the flip side, I mean, everything feels expensive right now. I, I needed shock therapy after I saw it filled up my tank of gas the other day. Groceries are getting more expensive. Seeing more defaults on loans than ever before. Seeing credit card debt going absolutely crazy. And I know consumers have got to pull back at some point or at least make some changes. And that’s kind of what we’re talking about here.

Bruce: [00:06:39] Well, it felt like I just got hit with a fire hose. That was a lot. Glenn.

Speaker 4: [00:06:44] I’ve been I’m not letting go.

Glenn: [00:06:45] Of my negativity over the last year without a good fight.

Speaker 4: [00:06:48] Over it.

Bruce: [00:06:49] I get it, I get it. All right. So I’m going to give you a discount, Glenn. Okay. So here’s 10% off. All right. You know, if you book three nights, here’s 25000 extra points. Okay. How about complimentary upgrades on the airline, Glenn? Buy a comfort plus ticket. You get complimentary upgrade passes.

Speaker 4: [00:07:11] For.

Glenn: [00:07:11] Everyone who heard that. Ignore that. At least when I’m booking a flight.

Speaker 4: [00:07:15] Yeah.

Bruce: [00:07:17] But also dining locations and I think in many locations you gotta feel like you’re getting a deal.

Speaker 4: [00:07:26] Yeah.

Bruce: [00:07:26] You need to stack up the deals. Okay. So hotels are going to deploy a lot of different strategies. Really trying to just get more flow of guests. Occupancy has got to get a little bit better this year to be able to say we had a really positive year. And there are groups that they can get to that might affect that. But also I think kind of what they call drafting off of some of that international performance, I think will also make a difference.

Glenn: [00:08:02] Right. And I’m seeing the deal kind of mentality take hold at our local supermarket. Thousands of prices have been recently cut. So everyone’s going in hard on that. I’m seeing deals, deals, deals wherever I go, so it’s no surprise the hospitality industry is doing that. And one quick thing, Bruce, I think it’s great that they’re doing deals as opposed to lowering their prices, because we know once you cut the price, it’s much harder to gain back that ground.

Bruce: [00:08:30] That’s correct. And we went a lot of years early in our career trying to figure out how that all worked. But now we know.

Glenn: [00:08:37] Yeah, we sure do. All right. So with the remaining time, let’s talk a little bit about where we are right now with real estate.

Bruce: [00:08:44] So the new construction projects we’re opening more than we’re starting. So the pipeline is declining a little bit. We’re still over 700 000 rooms, but we’re getting ready to get ready as projects that are signing into the pipeline are in fact start dates in late 27 and 28. Of course, we have the Olympics now, which is the next big event in the United States in 2028 in Los Angeles. And certainly we’re looking for growth in the pipeline and starts to be more prevalent, but we think we had a bottoming on construction starts early in 2026. So hopefully that continues to go up.

Glenn: [00:09:32] That’s yeah, we hope so too. So how’s all of this reflected in these numbers that we’re looking at now?

Bruce: [00:09:37] Yeah. So again, we had this, this quarter, a little bit of an imbalance in openings were a little bit more frequent than starts. But starts were better this quarter than the previous quarter. We’re still seeing a lot of transaction volume, which is leading to renovations and conversions. Transactions were up 23% last year, the first half of this year.

Glenn: [00:10:01] Bruce, why, why are these transactions suddenly up and why are we making movement here?

Bruce: [00:10:05] We have to make a decision on what to do with our real estate. Glen. Because the loan is due, the renovation is due it’s 20% to 25% more to run this hotel. Am I going to keep it? Yeah. Okay. And that’s what transactions volume leads to. It’s not that it’s a bad hotel. It’s just the investment criteria that we put together five, eight, ten years ago is not the same today.

Glenn: [00:10:29] Right. And I think perhaps tell me if I’m wrong, because again, I’m an outsider with this kind of stuff. I’m seeing a confluence of people who’ve been doing the proverbial kicking the can down the road, plus people that terms are coming due, which is finally creating kind of a little bit more of a swell than we’ve seen in the last couple of years.

Bruce: [00:10:46] Sure. And operating performance has been fairly good the past couple of years in general. Okay.

Glenn: [00:10:53] Even though.

Bruce: [00:10:54] It’s not.

Glenn: [00:10:54] Been rising, the hotels have been performing.

Bruce: [00:10:57] Yes. So if even though you’re operating performance is improving, it’s not improving. 25% to cover the gap. So it might be time to, quote, make a different decision and redeploy capital in another place where you’re going to get a higher level of return. So that leads to renovation repositioning that leads to conversion changing brands, whether that’s inside of a franchise company or going to a new one. And then, of course, the openings for new hotels, those are not historic lows, but those are not certainly historic highs either. So projects at existing hotels is going to be the story for the next couple of years. And it will continue to be an enhanced story. And we’re likely to convert and renovate somewhere between 325 and 375,000 rooms each of the next couple of years, which will be three and a half to four times more than new construction.

Glenn: [00:11:57] So what I’m taking away from that is if you’re a supplier to the industry, it’s a great opportunity for you right now to piggyback on this. Plus with new construction doing well, it seems it’s going to be a good time for those kind of folks in our industry, generally speaking, and for customers, we’re going to be getting upgraded room products all around.

Bruce: [00:12:16] Think about this too, Glen. If you, you know, you talk a lot about how you have conference after conference after conference. Okay. If I’m a hotel management company and I’m the president of the company, and I intend to renovate ten hotels in my portfolio this year, I’ve got to talk to those gems. Yeah. I’ve got to talk to those operations teams. And the easiest way to do that is to bring them together to do that. So I think the investment criteria and the plan of the company is on display because it’s changed. Okay. They’ve made decisions they’re going to have go with conviction and they’re going to act with conviction and not second guess what they’re doing because this is how it’s got to be. And I think that is a prominent discussion inside of many companies right now who own and operate hotels.

Glenn: [00:13:06] Excellent. So I bet you want to keep this conversation going. How can people do that with you?

Bruce: [00:13:11] Absolutely. You can see our latest press releases lodging econometrics.com/global Insights. We have a recent release on markets and the industry as a whole. And of course, when Glenn and I put this up for you, you’ll be able to go read the context as well. Bruce at lodging econometrics.com. Follow us on LinkedIn and Facebook as.

Glenn: [00:13:35] Bruce. I don’t want to I don’t want to throw you under the bus here, but it says be forward at lodging econometrics.com. Do.

Bruce: [00:13:39] Either way, they both show up. Yes.

Glenn: [00:13:43] Technology these days, man, there’s no way you can’t get in touch with Bruce. Make sure you do that. Bruce. We got a few seconds left. Give me a good takeaway.

Bruce: [00:13:52] A good takeaway. Get out and take a trip this summer. Get in the car and do that. But remember the deals are there. You just have to look. And in many cases, your credit cards or your loyalty status is a way to to exercise that.

Glenn: [00:14:11] And more and more people are doing that. Bruce, thanks so much for being here. And thanks to all of you guys for watching today. Be sure to like, share, subscribe, all of that kind of good stuff. Remember, you’ve got one life, so blaze on and we’ll see you next time. Right back here on.