Why Hospitality Is The Most Undervalued Asset Class In Real Estate

For decades, hospitality investments — especially hotels — have carried a reputation for being among the most complex and risky ventures, often grouped with restaurants as “high-effort” businesses. Traditional investment advice has long favored real estate classes that promise steady returns with minimal operational involvement.

A residential property could “pay you back from the couch,” while a hotel required daily oversight, skilled teams, and constant reinvention to succeed.

Yet, the perception of hospitality as “too risky” is increasingly outdated. Hotels are not just financial assets; they are lifestyle assets, capable of combining revenue potential with experiential value. Historically avoided for their operational intensity, They now combine the resilience of real estate with the upside potential of hospitality.

But the questions remain: Is classic residential real estate still the safest bet in a shifting market, or is it losing its shine? And do modern hotels truly demand unmanageable effort, or have they evolved into structured, technology-enabled investments that can outperform other asset classes?

Key Takeaways

Navigate between overview and detailed analysis

Key Takeaways

• Hospitality assets are emerging as the next strategic asset class, blending real estate stability with lifestyle-driven growth.
• Regulatory pushback against short-term rentals boosts the appeal of purpose-built hotels and aparthotels offering compliance and scale.
• Hotels generate higher revenue per sqm than residential, with RevPAR often exceeding apartment yields even after costs.
• Hybrid construction strategies like modular rooms and flexible F&B increase investment security and adaptability.
• Hospitality assets often achieve higher resale value multiples compared to traditional residential properties.
• Modern hotel investment models with professional operators and advanced systems make operational risk more manageable.

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The Five Ws Analysis

Who:

Real estate investors, developers, and UHNWIs exploring alternatives to traditional residential acquisitions.

What:

A shift toward hospitality-driven investments (hotels, branded residences, villa resorts) as they offer stronger yields, flexibility, and resale value.

When:

Accelerated post-2020 as rising rates, lifestyle changes, and regulations reshaped property investment strategies.

Where:

Global tourism hubs, urban centers, and resort destinations with steady leisure and business demand.

Why:

Because hospitality combines revenue resilience, compliance advantages, and lifestyle appeal, making it a strategic portfolio addition.

New space for hospitality created by shifting goals in classic real estate acquisitions

One of the pillars of traditional real estate value was capital appreciation: buying an asset, selling it at a higher price, and instantly realizing a profit.

This strategy often delivered stronger returns than long-term rental income, which was seen as weaker and less rewarding. The model was deeply tied to a social mindset that prioritized steadiness and safety, with most acquisitions serving personal rather than business goals.

But this has changed dramatically.

The rise of new opportunities, combined with platforms like Airbnb, unlocked ways for individuals to turn personal properties into income-generating assets. Instead of simply buying a dream home, many buyers started seeking properties that could generate short-term rental yield and secure a better financial future. Rising interest rates and lifestyle shifts further reinforced this hospitality-driven approach, even in family homes.

At the same time, the rapid expansion of short-term rentals has triggered a regulatory backlash. Across global cities, authorities are restricting conversions of residential stock into hospitality use to protect housing availability for locals. These stricter frameworks reshape the market in favor of organized hospitality projects. Purpose-built hotels and aparthotels benefit directly, offering investors compliance, scale, and long-term stability — advantages individual rental units can no longer guarantee.

Revenue goes higher in hospitality returns compared to residential (even in stressed markets)

Beyond regulatory advantages, one fact remains clear: hotels generate stronger revenue per square meter than residential assets. The industry benchmark, RevPAR (Revenue per Available Room), consistently outperforms the yield of a standalone apartment. Analysis across more than 100 case studies by hotel consultancy firms such as Destsetters confirms this pattern across both city and leisure destinations.

A 25 sqm room in a five-star hotel can generate equal, or even higher, revenue than a 75 sqm standalone apartment in the same area. In other words, each square meter in a hotel can generate significantly stronger returns, even after accounting for the additional operating costs. The same applies to villas, where those integrated into hotels consistently achieve higher revenues compared to individually managed ones.

The reason is straightforward. For travelers, especially in the luxury market, trust and safety come first, while included services are a decisive factor. Few guests want a beautiful room without housekeeping, or a pool without the ease of ordering a cocktail.

Beyond this, organized hospitality assets leverage multiple revenue drivers: global distribution channels, advanced sales technology such as Revenue Management Systems (RMS), and professional teams that optimize pricing and occupancy. The result is a revenue engine that residential assets simply cannot match.

Importantly, revenue generation in hospitality does not stop at operations. In today’s market, hotels as assets also command higher capital appreciation than residential properties. Selling a hotel can deliver a far stronger return than selling a simple apartment building, while even residential properties become more appealing when they carry a hospitality-driven revenue potential.

Yet capturing this opportunity requires more than recognizing market shifts. It demands hybrid development strategies that make hotels both profitable and resilient. Smart service implementation and flexible spatial planning are essential to create assets that can adapt to changing demand without losing efficiency.

Hybrid construction strategies behind new-build hotels increase investment security

New hotel developments must learn from past challenges and approach themselves not only as operational ventures but also as long-term real estate assets. This begins at the design stage.

Before an architect draws the first plan, a clear investment typology should define the building’s business alternatives, ensuring that the property can adapt to future market conditions.

For example, a five-star hotel built today could be designed with multiple scenarios in mind. Guest rooms may primarily serve leisure travelers, but with minor adjustments they could later be converted into serviced apartments or long-stay residences. A gourmet semi-buffet restaurant might, in a future scenario, evolve into a dining hall for resident tenants.

These options require pre-designed flexibility — such as allocating extra square footage for seating areas in rooms, planning for communal laundry facilities rather than in-unit washing machines, or designing modular F&B spaces that can serve different audiences over time. In this way, every square meter is considered not only for current use but for future value creation.

Hybrid hospitality does not end with classic hotels. Increasingly, developers are exploring all-villa resorts that double as residential neighborhoods, city complexes with mixed-use apartments, co-working hubs, and branded residences that merge lifestyle and investment. These concepts allow a holiday home or a second property to combine the appeal of ownership with the yield potential of a hospitality asset.

Hospitality as the Next Strategic Asset Class

The future of hotel investment is promising, but it remains vulnerable if approached without flexibility. A hotel today cannot be seen solely as an architectural creation; it must first be defined as a commercial product, with a clear investment specification before design begins. This means approaching it with a real estate mindset as much as with a hospitality one.

The word “hotel” itself has now expanded. It no longer refers only to the traditional lodging model but also includes alternative structures such as villa resorts, branded residences, and mixed-use developments. This broader understanding is exactly where the opportunity lies: to create hospitality assets that combine the solidity of real estate with the dynamism of lifestyle-driven growth.

Official website: https://www.destsetters.com/

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