Major Shifts In Consumer Behavior Drag Down Hotel, Retail CRE Pricing

While the industrial, multifamily and office real estate sectors are thriving, major shifts in consumer behavior have taken a toll on hotel and retail real estate, driving down prices, according to Ten-X’s latest Commercial Real Estate Nowcast.

“Hotel is the weakest sector in the most recent report, and is the only sector down year-over-year,” Ten-X chief economist Peter Muoio tells Bisnow. “The other weaker number this month was for retail. Similar to hospitality, people are paying more attention to the degree to which brick-and-mortar is struggling against the impact of technology."

Previously dominated by big-box stores, the dominance of e-commerce and the growing prevalence of omnichannel shopping is hampering the retail sector, making large department stores and restaurant chains wary of expansion. Overall pricing for the sector was up a mere 0.7% in October and 6.5% year-over-year.

However, it’s the hospitality sector that has taken the biggest hit. Overall pricing dropped 0.3% in October and 8% from a year ago, fueled by a surge in traditional supply and internet-based competitors.

“International travel to the US has fallen off in recent quarters, a reflection of the stronger dollar and weaker economies in China and Europe,” Peter says. “Another element is competition represented by Airbnb. For a long time the hotel industry and investors in hospitality properties did not view that it as a big deal, but now it’s starting to consider the impact on competitive supply and room rate increases.”

Overall commercial valuations were up 1% month-to-month and CRE pricing rose by 6.9% compared to a year ago, Ten-X’s research shows. The firm uses proprietary technology, Google trends data and investor surveys to determine what's happening with CRE pricing in real time.