When we evaluate hotels, we sometimes come across exciting opportunities in smaller, off the beaten path markets. Many investors will not touch these opportunities because they only want high profile assets in large, urban markets. But they could be missing out because while owning and operating hotels in tertiary markets can come with challenges, they can also come with immense opportunity.
Investors may shy away from tertiary markets because they don’t know what to expect, i.e., they don’t have as much data to back up their analysis and evaluation of an asset as they do for assets in larger markets. And as we’re experiencing a very lengthy period of economic expansion, there’s the constant concern about how tertiary markets may hold up in the event of an economic downturn.
While these are valid concerns, investors may be missing out on one of the more exciting travel trends of the last few years, guests seeking experiences. While there is certainly a lot to do in major urban markets, tertiary markets offer the unique destinations guests increasingly are looking for when they travel. National parks are attractive as are drive markets a few hours away from major urban hubs. Hotels in these markets can be successful through tapping into the local labor pool engrained with the fervor for the activities and excitement of the local market. Although a smaller labor pool can come with its own challenges, in today’s low unemployment market we are all experiencing labor challenges so it may not be much different than what hotels are dealing with in the largest metropolises.
Although due diligence and analysis may be much more in depth and lengthy and banks may take a harder look at assets in tertiary markets, the direction of travel is changing and investors who are open to these opportunities may find the hidden gem every investor seeks. If the new traveler is seeking a little more adventure, shouldn’t the investor also? Sometimes the most rewarding opportunities can be the ones that intimidate us the most.