The revenue pricing cycle is changing in favor of hotels and many a hotel expert and their management peers are suggesting that now is the time to push higher transient room rates. All indications in the hospitality sector point to a stronger travel season this year and next. This is especially true on the domestic home front where Americans are becoming more optimistic and have begun planning extended vacations once again. According to this news report on what is driving Revenue-Per-Available-Room: “The majority of RevPAR growth is now coming again from ADR growth. In 2010 and 2011, positive occupancy change drove positive RevPAR change. Now, in the first quarter of 2012, occupancy increased 3.8%, while ADR increased 4%. We expect this trend of larger ADR increases to continue in the foreseeable future.” Read more on what this hotel expert says hotel developers expect in the next three years. In addition to improving RevPAR, hotel values should rise with incremental increases in average room rates. In a survey of hotel asset management at the recent HELP conference, raising rates is the call by many to increase RevPAR and get higher valuations. However and on the issue of hotel cap rates, these hotel advisors concluded: “As far as capitalization rates are concerned, those numbers are all over the map. In primary markets, cap rates seem to be in the 8.5% to 10%-plus range for select-service properties, for instance according to one panelist. Others said they have seen cap rates low and high.” Still, the primary takeaway here from a hotel expert perspective is to drive rates if only a modest amount, which ultimately improves hotel real estate value. For example and assuming a 10% cap rate, a 200 room hotel with 65% annual occupancy and a $1.00 increase to the yearly average rate adds $475,000 to its valuation. Need we say more?
