Brexit dealt a significant blow on the hospitality stocks in the U.S. A large number of hotel REIT stocks have experienced a depreciation of more than 5%. Because investors have been negatively inclined toward hotels, these stocks currently attract the most lucrative dividends in regards to REITs. What does it entail to invest in it?
- Wall Street has taken stringent measures in the event of oversupply. A real estate investor’s greatest discomfort stems from supply, and that is what has happened with the hotels. On the upside, the supply growth has not yet been above its 2% historic rate. Besides, overall, demand growth remains greater than supply growth.
- Concentrate on hotel scales where demand is stronger than supply. This is the case of luxury and upper scale.
- Steering clear of cities indicating an oversupply is prudent. Take for an example; New York has been cited as an area engaged in massive construction.
- Beware that the U.S. dollar might appreciate further. Evidently, the U.S. dollar experienced a notable increase in later half of 2014 and the opening semester of 2015, and observations appraise an increase of the U.S. dollar. Brexit is responsible for investors taking a keen interest in the U.S. dollar. Consequently, with an increment in the strength of the dollar, foreign tourists are reluctant to tour U.S. cities. As a result, gateway markets like Orlando and Miami are adversely affected.
- Short rental websites are in no way a hindrance, although Airbnb is well rooted in cities like San Francisco, Los Angeles, and New York. A glimpse at San Francisco reveals over 33,000 hotel rooms and over 8,000 Airbnb listings. That said, San Francisco has implemented systems that stunt its expansion, which if allowed, could spread over to other large cities.
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Disclosure: The author has no positions in any shares mentioned, and no plans to initiate any positions within the next 72 hours.