Hospitality is the Cranberry of Real Estate

Tim Milazzo
March 20, 2019

Hospitality in real estate has always come in a few variations: full-service hotels, limited-service hotels, motels, hostels, bed & breakfasts, and a few others.

But these days, we’re seeing hospitality increasingly grow beyond an asset class, and become a recurring theme across all the traditional real estate categories. Much like cranberry juice has invaded other fruit to create Cran-Raspberry, Cran-Apple, and yes, even Cran-Mango, every real estate asset class is getting their own flavor infusion from hospitality.


Hospitality’s cross-over with multifamily has spawned one of the fastest-growing startups of all time: AirBnB. This is actually a move down the service-level spectrum from most of the existing hotel stock out there (generally speaking). AirBnB and their ilk were among the first internet-enabled innovators to apply the hospitality mindset to another traditional real estate asset class in order to create a unique and compelling user experience. We’re still just calling this “Cranberry” because it’s all still all about short-term stays — the underlying stock of real estate just happens to be outside of the traditional dedicated hospitality model.


Hospitality’s applicability to long-term stays isn’t entirely new, but it’s certainly new as a model for the working-age middle class. As the lives of the average American millennial (and younger) grow ever more digital, it turns out that individuals crave the sense of community that a dorm brings to college students, pairing nicely with the strong desire for flexibility and services. Co-living’s rise hasn’t been as meteoric as Airbnb for short-term stays, but there’s evidence that it may be a supply-centric issue, as popular co-living brands have very long waiting lists for popular markets where they open new locations.


Let’s not beat a dead horse. Whether you prefer the term “coworking”, “flexible office”, or whatever, the world of office leasing has forever changed this decade. Never again can an office landlord rely on the strategy of direct leasing to startups, and don’t bet on other supporting trends, like the migration from office workers toward 1099 contract work (away from W2 employment), reversing any time soon. The writing is on the wall.

Now not all of the small to mid size companies out there want to work in open spaces alongside other companies. We’re calling the middle-ground, higher service office solution “Hosted HQ” here, but you’ll find others referring to it by other names. “Flexible office” is too vague. But WeWork, Knotel, CBRE’s Hanna, etc are all competing to offer more than a space and less than turnkey coworking desks to companies from 10 to 1000 employees.


Industrial has seen huge gains at the expense of shopping malls and other retail properties due to it’s honeymoon period with E-commerce. But that’s not a mixture with hospitality which we’re covering here. Industrial has undergone somewhat less mixture with hospitality than other classes of real estate due to the value of industrial and physical work spaces being tied, inherently, to the square footage required to produce, store, and ship physical goods.

But there are definitely interesting things happening in the market for non-consumer physical work and storage spaces. Just recently, WeWork announced a new Food Labs program, a twist on their popular WeWork Labs startup space. Shared warehouse spaces are a separate and larger growing trend to watch.


As a real estate investor, it’s time to move beyond traditional definitions, and focus on the need of your customers. These flavors have been demanded by an increasingly on-demand society. Start-ups need office space, but they don’t want to think about the details of how the wifi is set up or where the coffee comes from: the need is a place to “plug in” to work. People need a place to relax and to sleep, but they may not want to supply a kitchen, buy furniture, or even clean the bathroom: co-living meets these needs with a package solution. For any property you own, make a checklist of the needs of the people occupying them that you can bundle in to a occupier deal, especially if that need is new or growing in society, and you may stumble upon the next big iteration of a real estate asset class.

We’re in a Cambrian explosion of new combinations and overlap between hospitality and other traditional real estate asset classes.

Bring on the cranberry juice!

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