The Return of Hospitality

As history has shown us Real Estate is a cyclical industry. Similar to the rising and falling of the tide, the commercial real estate market ebbs and flows. Currently, we are at a full moon ebb tide and the boat is lying on the sand. Although things are bleak some positive figures in the hotel industry have been released that suggests the time to push the boat off the beach and re-enter the market is here. 

Smith Travel Research a leader in global travel research for over 20 years has released figures stating that the demand change for hotel rooms in 2008-2009 decreased by 8.2% while the supply of new hotels increased by 5.5%. Going forward, Smith Travel suggests the forecasted demand for 2010 will rebound 5.7% with continued growth in 2011 of 3.1%. On the supply side, there is expected to be a 2.6%change with little growth forecasted in the coming years. Put simply, hotel developers are taking a break and allowing demand to catch up to supply. The forecasted numbers are derived from the broader travel industry showing signs of stabilization and macro economic factors such as job growth and the return of international travel. 

This brings us to the question of whether to take on the risk of investment now or continue to wait for the tide to come in? To answer this, you must ask yourself, “do I want to take advantage of the discounts created by the momentary imbalance between supply and demand, or do I want to play it safe and wait until the market normalizes?” If you are looking for higher returns and don’t mind more risk, the time to invest is now. If you belong in a risk adverse group, then it will be best to wait it out. Consider starting your search with “class B” hotels offering just the essentials for travel. These hotels have been hit hard and are being sold at steep discounts. However, due to their low overhead and budget rates, they will be the first to recover. As with any real estate investment, your financial success requires an understanding of the current economic conditions and a comprehensive study of the local market. Local market demand generators such as barriers to new supply, local and state political forces, and travel infrastructure (airports and convention centers) are vital to a successful investment. The complexity of commercial real estate investing makes it a smart choice to seek the advice of a professional. An experienced commercial broker will assist you in all phases of the investment process.

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