Lodging and resorts is one sector of the REIT universe that nearly everyone has experienced, whether on a vacation with the family or a business trip for work. It makes sense, then, that the same forces that influence household vacation plans or business travel needs are also the main economic drivers for the hospitality business.
Travel demand tends to be an early signal of broader economic trends, due to its short duration—overnight or a few days, for a typical booking, in contrast to the two-year length of stay commonly seen in the apartment sector, or leases in office or retail properties that may run five to 10 years. As a result, hotels often are the first to feel an economic downdraft—but also are the leaders in a recovery.
Current conditions bode well for the outlook for lodging and resorts. Corporate profits, one of the main drivers of business travel, increased 5.5 percent last year, and saw another strong gain in the first quarter of 2018, including a boost from corporate tax cuts. Household budgets, meanwhile, are benefitting from low unemployment and rising wages, which is good news for families planning a trip during the summer holidays or later in the year. International visitors remain another important source of demand for lodging.