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Posted Jan 9th, 2018

Slowdown in Hotels and Multifamily Housing Means Timing is Ideal to Explore New Real Estate Opportunities

This is the first article in a four-part series on how real estate investors can leverage their commercial development experience in growing sectors like 55+ housing. To read part two in the series, click this link Whats Happening in the 55+ Housing Industry?.

Investors can get a head start in sectors like 55+ housing

Hotels and multifamily housing developments have continued to be profitable for many investors but timing could be right to diversify to avoid market saturation and get ahead of a potential slow in growth. One opportunity could be the 55+ market, as 42% of Baby Boomers plan to move according to Metrostudy. Developers can get a head start in this housing segment, making it the perfect time to diversify or transition their portfolios.

The End of the Hotel Boom?

After the recession, developers switched their focus from residential to commercial properties, leading to a boom in the number of U.S. hotels. An increasing number of hotels were built and the number of guests continued to rise. Now, the industry is starting to experience a slowdown as the increase of new hotel rooms begins to affect occupancy rates.

According to a CoStar report, the average occupancy rate for U.S. hotels decreased this year for the first time since 2009. The growth in average room rates and revenue per available room (RevPAR) has started to slow down as well.

Epcon_RevPar_Graph

Investors are building hotels very quickly, but there are simply more hotel rooms available than the number of guests that need them. The real estate industry as a whole is expected to have an eventual cycle downward. Since hotels tend to have unpredictable market cycles, this could stop, or at the very least slow down, the growth hotel developers have experienced.

Slower Growth in Multifamily Housing

The multifamily housing sector is also starting to stabilize or slow, according to the Freddie Mac Multifamily 2017 Mid-year Outlook. The number of multifamily housing projects is expected to peak at the end of 2017 and remain elevated in early 2018 before it levels off. While demand for apartment building is high, rent prices have skyrocketed in many cities, potentially hurting future rent growths.

Meanwhile, Freddie Mac also reported in its mid-year report that the number of people who own homes is increasing, slowing the growth of apartment buildings. In the first quarter of 2017, more new households bought than rented for the first time since 2006.

Epcon_Buy_vs_Rent_Graphic

With more people buying homes and little room for rent to rise, the multifamily housing industry is likely to slow, giving developers an opportunity to expand their portfolios.

What this Means for Real Estate Developers

The hotel and multifamily housing industries remain strong, but are showing signs of a slowdown. For many investors, this is the perfect time to explore new types of real estate development. They can continue to leverage their development experience while getting into new sectors on the ground floor—before there is a huge amount of competition.

One example is 55+ detached homes, which hasn’t yet been overtaken by national developers.

Interested in Learning More?

For more information on how hotel and multifamily development experience can apply to 55+ housing, check out part two in our series by clicking this link Whats Happening in the 55+ Housing Industry?.

You can also download our free e book on leveraging hotel and multifamily housing development experience in the growing 55+ housing sector by clicking the button below.

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