Is entertainment real estate a risky investment?

By
Services for Real Estate Pros with Representative

Entertainment real estate may sound like a peculiar investment, especially in 2021, considering that the industry was quite shaken up. But even though the entertainment sector has changed, it remains an important part of the economy, and once things turn back to normal, investors might be pleased to find out that it can deliver a good ROI.

 

In short, entertainment real estate refers to properties such as cinemas, casinos, amusement parks, entertainment centers, ski resorts, zoos, museums, and other venues where people come to enjoy experiences. In the past years, the interest in entertainment real estate has grown considerably because, contrary to a few years ago, people no longer want to spend their money only on things, and instead, they also want to live unforgettable experiences. Investing in entertainment real estate is not for everyone, and it requires a lot of careful research but, once you do discover the most profitable properties in your region, you could be in for a treat.

What are the most lucrative entertainment venues?

Ideally, we’d all want to hear a clear answer to this question, but, unfortunately, there isn’t one type of entertainment sector that has a good ROI everywhere, across the board, in all regions, and in all seasons. It all depends on the country or state where you want to invest, and the trends of the market. For example:

 

  • Casinos tend to be most profitable in cities that have a booming travel industry. Gambling is an up-and-coming entertainment sector, and it’s worth capitalizing on.
  • Golf courses and family entertainment centers provide the best ROI in residential and family-friendly neighborhoods.
  • Cultural centers, zoos, museums, and other cultural attractions do the best in cities with a rich cultural heritage and where cultural events happen all year long.
  • Cinemas aren’t dependent on geography and local culture, but in smaller cities, there isn’t usually demand for more than one cinema.
  • Waterparks and marinas tend to be the most popular in cities that are located next to the water, but also in landlocked cities if the weather is warm enough.
  • Sky resorts are a profitable investment in the mountains.

 

All of these sub-sectors can drive profit, but one that particularly stands out is casinos. In the past few years, the industry has undergone massive changes, becoming more modern and sophisticated. All over the world, from North America and up-and-coming markets such as Colombia, casinos continue to provide a good ROI. For example, in Colombia, which has had a change in gambling legislation recently, the number of tragaperras players has grown considerably.

 

The variety of casino games is also wider. Apart from the all-time popular machinas slots, which come in many themes, clients can also play poker, blackjack, and many other games, so it doesn’t come as no surprise that more and more investors are flocking towards this sector.

 

If we look at the biggest real estate investment firms, listed on the stock market, we’ll see that the ones they gravitate towards the most include cinemas, casino real estate, and lodging. Wellness also receives an honorable mention, as the interest in spa, massage, yoga, and mindfulness continues to grow. Settling on only one type of entertainment real estate can be tricky because you don’t want to miss any opportunity, which is why many people invest in more at a time. For example, you can invest in a resort that has a casino, restaurant, hotel, and movie theatre. This way, you can attract more categories of clients, and you can boost your ROI. Keep in mind that, since the inevitable transition to online casinos, the casinos that stand out are the ones that offer a little extra in addition to games, so the future of land-based casinos could very well lie in resorts.

But aren’t entertainment venues risky?

As enjoyable as it may be, the entertainment sector isn’t essential so, in case of a crisis, it’s the first to suffer. Last year, we could all see that. All entertainment venues, from casinos to movie theatres, had to close their doors, and that obviously affected the investors’ bottom line and on the venues’ profitability. Unfortunately, many businesses couldn’t recover from the crisis and went bankrupt. It’s an inherent risk of this industry, and, as an investor, you have to acknowledge it and be on board with this risk.

 

The good news is that, after the crisis passes, the entertainment sector will come back in full swing and bigger than ever, as people will want to return to normal life and enjoy once again the activities they couldn’t access for months. For those businesses that managed to survive the crisis, many opportunities await. Of course, it all depends on the sub-sector. For example, movie theatres are still closed, and even those that opened didn’t have any movies to roll. Instead, casinos reopened a while back, and they’re still on the road to recovery. Some wellness centers, depending on the location, opened but had to follow some restrictions.

 

All in all, entertainment venues can be a lucrative opportunity and a great way to diversify your portfolio. If you already own residential and commercial real estate, adding a few entertainment properties can boost your wealth. However, you also cannot neglect the fact that entertainment venues are more volatile, and they can be victims to the whims of the economy. That’s why you have to choose your location and your entertainment sub-sector wisely. But, at the end of the day, that’s what diversifying is all about: having a nice combination of safe and risky investments from several fields so that, in the event of a crisis, earnings can mitigate losses.

 

It’s also worth pointing out that crises don’t happen every day and, with good management and an innovative mindset, even the most critical events can be overcome. For example, the casino industry learned to adapt and moved online and was able to thrive when other industries failed.

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