A Trip, a Hotel Bill and Real Estate Fundamentals

Every few months I visit my mom in the retirement community in which she lives on the coast of Mississippi. It’s a nice interlude for us both and one I have done so often I can tally up the costs even before I start making the arrangements.

Until this upcoming trip. The ticket, gulp, I was not surprised to see about $50 more than the last one I purchased. And the airport hotel that I stay in the night before I leave Mississippi on my 6 am flight? More than that in fact.

Then my mother warns me that when she picks me up at the airport she wants to stop at the nearby super center Wal-Mart. A frequent, even daily, shopping trip for her at one time, she’s been curtailing her stops there for those times when she is actually in the neighborhood because of the rising gas prices. Which, too bad for Wal-Mart, is only when she is at the airport every few months.  

A period of prolonged inflation, the conventional thinking goes, is good for commercial real estate. Investors like surety and certainty and commercial real estate, for all the angst of the last few years, provides that.

Of course the flip side to that story line is that rising interest rates - as with the residential housing market  - decreases the supply of able buyers to those with cash or stellar balance sheets.

But there is another impact that the real estate community should consider:  the ancillary costs to these assets themselves and how that will affect fundamentals. Take my trip for instance:  there are a lot of factors that go into hotel pricing, including the cost of such incidentals as sheets and towels. I read recently that these are rising for hotels and in some cases, being reflected in the pricing. Is that the case with my usual hotel at the Gulfport airport? I don’t know but the price increase is enough to make me seriously consider the option of making the long drive to the airport at  5 am.

I also am reading quite a bit, in fact, about retailers, especially big box stores in the suburbs, that are viewing rising gas prices with alarm. People are no longer willing to drive the additional miles just to browse if they can get what they need closer to home.

Higher interest rates are coming, sooner or later. We are braced for the impact they might have on refinancing debt. But what about their impact on fundamentals?