CoStar’s Freitag’s “Bearish” Outlook on Business Travel

by Robert McGarvey

Don’t listen to me and I know many of you have not been because for the past nine months I have played Cassandra in forecasting that business travel may never return to 2019 levels and certainly won’t this year or next. Hardened business travelers have just not wanted to believe that could happen. So many have rejected gloomy prognostications, more out of their own desires rather than factual analysis.

But now a heavyweight travel analyst has weighed in with a remarkably gloomy forecast. Jan Freitag, national director for hospitality market analytics at CoStar (nee STR), now is saying business travel isn’t coming back. Period.

When it comes to forecasting the future of business travel, Freitag says: ““I am very bearish on this.”

If he is right this is bad news for Manhattan, San Francisco, even middling markets like downtown Phoenix because these economies hinge on robust midweek business travel. If the hotel rooms are empty, so will be the restaurants, the bars, and much more.

But Freitag probably is right.

The usual argument about why business travel isn’t coming back to full 2019 levels hinges on three realities: technology (think Zoom) has shown that face to face can happen digitally; corporate bean counters want to retain the savings companies have enjoyed when pretty much all business travel was on pause; and, importantly, a significant number of former road warriors have realized that, sans a heavy travel schedule, they are healthier. slimmer, better rested, and have a better family life. Reducing travel just is good for a person.

A fourth argument of course is that it also is very good for the planet and a lot of companies – admittedly more in Europe than in the US but there are some in the US too – are vigorously waving “Go Green” flags as they brag on their cuts in business travel.

Freitag – whose specialty is crunching numbers and finding meanings – looks at another, telling number when he offers his gloomy outlook for business travel: office occupancy. In many major markets – New York and Chicago for example – occupancy is around 30%.

“If I’m supposed to visit you and you’re in the Park Avenue office of some major law firm but you’re not there, I’m not going to visit you in your kitchen in Hoboken; we’re going to do this on Zoom,” Freitag said at the 2022 Hotel Data Conference. “There is, to me, a clear relationship between the lack of office return and urban occupancy.”

Meantime, many companies are subletting space they had rented because they have realized they are never returning to the office occupancy patterns of 2019. A recent survey found half of companies saying they plan to cut office space in the next year, often by as much as half.

Commercial Observer reported: “Yelp announced in June that it would eliminate mandatory in-person work and closed 450,000 square feet of its offices in New York City, Washington, D.C., and Chicago. Amazon and Meta followed suit, announcing that each tech tycoon would slow its expansion in the Big Apple while reevaluating workplace strategy. Salesforce put more than 412,000 square feet of its San Francisco office on the sublease market in July while Twitter recently announced plans to close and downsize offices around the world, including trying to offload a full floor of its New York City outpost.”

The reality is that many office workers discovered in 2020 and 2021 that they liked not going into the office, and certainly they liked not going in five days a week. Accordingly many employers are shedding office space that nobody wants to use anyway.

Add it up and I see a permanent and sizable decrease in business travel. Probably it will stay down by at least one-third, possibly one-half, as organizations slash travel that does not include a palpable ROI. Sales calls, customer relations calls, and suchlike will continue. “Get to know you” face to faces not so much. Inhouse get togethers probably not at all.

But the silver lining for those who still want to travel is that – assuming we sidestep a recession, which seems ever more probable – trips that feature a clear ROI will be funded. If you want to travel, work up a clear business case argument. And Bon Voyage!