Assessment of the potential for renovation or repositioning can offer several options that give clarity to the direction that needs to be taken to make the biggest impact in a post-COVID World.
Our Hotel Renovation Assessment (HRA) sets the preamble to the Renovation Strategy and represents a core component to the ROI analysis. This approach offers the biggest impact relative to the time and investment required.
For all the complexities of the hospitality industry, it comes down to the fundamental operating dynamics of a hotel, related to the many internal and external influences, that will define success. A well planned and executed renovation project should deliver a clear return on investment, and with increased revenues from the operation, the asset value or capitalisation rate of the property will also be increased.
The sell or hold decision associated with the asset strategy can therefore be influenced by the metrics from a renovation assessment in that it can offer insight into an improved asset potential for sale, or conversely compound the decision to hold.
Successful hotel renovation projects begin with communication and a measured approach to establishing a design that will deliver an enhanced guest experience and a budget that will deliver the desired return on investment (ROI).
The first step in the budget definition is establishing the data and metrics that are aligned with the primary project drivers, and those of the project stakeholders. This approach has a positive impact on the project by drastically reducing compromise and increasing speed to market.
Hotel projects are often mired at the outset with budget discussions, most likely taken in isolation and without understanding the metrics for success. Unfortunately, they often have little relevance to a specific project or property, which in turn leads to missed opportunity and delay.
Whether or not to consider a full or partial renovation, with hard or soft touches, aligned to the drivers, must be reviewed at the outset.
An Introduction to Metrics
In their most simplistic form metrics are measurements. If something can be measured, you have a better chance to improve the position. Visibility into your metrics allows you to identify where you can make the most impactful improvements, and simultaneously measure the starting position and the planned and ultimate outcomes.
A renovation has a direct impact on a hotel’s metrics, post-renovation. The added benefit of this metric-driven approach being that any improvements are tangible as they are reflected in the very same performance metrics that we use to define design and strategy in the first instance.
Renovation assessment is a process that aligns known metrics with target future metrics to generate an increased revenue forecast and simultaneously a budget and ROI analysis for the renovation.
In the current market, when metric fluctuations sit outside the regular socio-economic changes, metrics such as RevPAR offer a less impactful comparison when considering renovation than say market share or the market penetration index (MPI).
Market Penetration Index (MPI), or Occupancy Penetration Index, measures how a hotel’s occupancy compares to its competitors. This metric determines a hotel’s dominance and demand in the marketplace, which can help to shape the future strategy. Hence, focusing on the right metrics is important.
The second component of the analytics is data collection, including guest satisfaction surveys, online reviews, net promoter scores (NPS) and the like. The aim here is to review the position of a hotel relative to its own performance over time.
The increasing importance of ‘social currency’ in today’s technology and social media-driven world cannot be ignored, as it will provide invaluable insight into the perception of a property.
There is a simple analogy where guest data is concerned. There is little value in changing the look and feel of a guestroom, to the latest fashion or trend, if the air-conditioning and hot water are unreliable. This is the data collection that will have the maximum impact on your renovation design and strategy as it will add weight to targeting future metrics.
This process could be considered a SWOT analysis. The data collection reflects, internal, strengths and weakness, whereas the current hotel metrics represent, external, opportunities and threats since they can be compared to other hotels in the competitive set.
Establishing the Metrics
Communication facilitated through a series of meetings or workshops ensures that there is a logical process of research and analysis to determine the appropriate strategy. It is vital that all stakeholders contribute.
It is also important to consider the dynamics of the property in any assessment. This could include area analysis, where the highest and best use of potential revenue-generating space is considered. Equally, efficiencies in operation and reduced CAPEX or maintenance costs can factor in the target metrics for success.
A range of options should be considered in the form of a sensitivity analysis, aligned to the metrics. Again, this process promotes discussion and communication amongst the stakeholders to establish the best path forward.
Opportunity cost, which is the standstill, do-nothing position, is another component of the analysis, that adds weights to any decision. This part of the assessment reflects a renovation ROI or investment analysis.
The objective is a considered view of all the metrics and data with a measured and controlled approach.
Renovation planning could equally be the result of a re-positioning or re-branding exercise, therefore not considering all the metrics could lead to a renovation that is not well informed and will not effectively return the investment, simply because it misses the drivers for increased metric performance.
The physical condition of a hotel, highest and best use scenarios and the position of the asset within the asset and investment cycle are all components that carry weight in the analysis. Affiliation or contribution analysis will also provide insight as to whether impact can be made with a shift in brand, system, or marketing position.
Hoteliers know that great reviews and scores from their guests are all-important in the battle for market share. Sentiment analysis uses the process of attributing a positive, negative, or neutral score to each customer review. This gives real feedback on what guests think of their experience, how well a hotel has dealt with any issues, and what they loved about staying in the hotel. Customer reviews have huge power in building reputation and new guest acquisition, so it is important to take this data seriously. Hotels that carry out a sentiment analysis can identify trends in guest experience and opinion, giving them the ability to quickly react as a business. This information can therefore give you an insight into what is working, and what is not when considering a refurbishment.
The investment criteria of the Owner or Owning Company will also have an influence on the renovation. The size of the investment, holding period, desired hurdle rate and aversion to risk will all have an impact on the budget and must be considered to align metrics.
The asset management strategy will also often dictate the drivers for a hotel renovation, from financial projections and CAPEX spend to valuations on the property.
It is also important to assess the impact on the operation, post-renovation, through staff training and marketing strategy to achieve the desired return on investment.
Understanding the Metrics – Hotel Renovation Assessment Output
Having gathered the information through research, communication, workshops, and meetings, how do we now make sense of the metrics and data, and how do we use it for maximum effect?
The correlation of the metrics to produce a series of investment scenarios is often complex in nature, given the many variables and interdependent nature of the metrics.
By analysing the data through a proprietary set of tools and techniques RLA can offer a dynamic Renovation Assessment, with actionable content, that will provide reasoned scenarios to promote further discussion, and set the scene for successful renovation projects and further asset management strategy, by promoting a single aligned vision to project success.
About the author: Paul Boldy, RLA Global Managing Director
Paul has worked across the Middle East and Africa for the past 16 years, representing operators, owners and developers with feasibility studies, technical and design services, renovation, and improvement plans and operational consulting services for various hospitality and leisure assets. A thought leader in the Hospitality Sector, Paul has helped shape Hotel projects across all stages, from development to design and through pre-opening to operation, representing the full life cycle of the hotel asset with dynamic results.