Much like the retail real estate sector, the hospitality/entertainment sector thrives on the discretionary spending of consumers whether for business or for pleasure. As such, it is a leading indicator as to the state of the economy. There has been an increase in leisure and hospitality spending over the past years with markets hitting peak demands and increases in consumer spendings. In 2015, investors spent over $40 billion in the US hotel market with total transactions over $23 billion and an expected $25 billion in 2016. When the job market is strong and incomes are stable, people tend to travel or spend more due to higher amounts of surplus income. However, when the economy is depressed, this type of real estate market feels the shock first. This sector tends to show larger, over-exaggerated gains and losses ahead of the gains and losses of other sectors. Unlike most other commercial asset classes, which have income based on long term leases, hotel rooms are essentially leased by the day, which makes income much more variable.
Looking to the future
Strong demand levels have encouraged new hotel construction in recent years, and this trend is expected to continue particularly at the upper end/luxury segment. The budget hotel segment has not seen the same improvements as guests look to a more engaged experience during their stay. The convergence of hospitality and residential trend in hotel-service-style apartments and other manifestations is expected to continue and innovate. Innovation in shared space technology also poses additional competition to the hotel industry as companies such as Airbnb expand into the market to provide alternatives to consumers.