There are a number of ways to conduct a hotel valuation, and hotel valuers tend to use different techniques depending on the purpose of the hotel valuation. Although the future profitability of a hotel is the primary factor determining the hotel’s value, a number of other factors combine to influence the final result of the hotel valuation. A few such factors are discussed below.
The presence of a strong and well-respected brand can positively influence a hotel valuation. Brands that have a global network enable wider market reach, greater brand recognition, loyalty programmes that drive demand, operational efficiencies, and standards of service. The presence of a brand also encourages owners to maintain a hotel property in order to maintain the brand standards.
A hotel in a strong location is likely to influence a hotel valuation positively. In Cape Town, for example, a hotel located at the V&A Waterfront is likely to achieve a higher valuation than a property outside of this key node, all things being equal.
The extent of new supply planned in any market can influence a hotel valuation. In a market where a high level of new supply is planned, hotel values are likely to be more muted, as future performances will be subdued by more competition. However, in high growth markets, this is not always the case. Where a number of new rooms are planned and market demand is such that the new supply is likely to swiftly be absorbed, the impact of the new supply on the hotel valuation will be limited. Cases like this are, however, rare.
Quality of the Property
The overall quality of the property and the level of maintenance that has been undertaken will influence the hotel valuation. Usually, a buyer will conduct a technical due diligence of a property, in order to ensure that the building is structurally sound and the equipment is in good working order. If any major flaws are uncovered as part of this assessment, the price is usually negotiated to be lower.
The conditions in the market are important in determining the correct hotel valuation. It is important to understand not only the current market trends, but also assess the future market opportunities and any future risks. For example, where a single demand generator drives a high number of rooms in one market, the impact of losing that demand generator and the subsequent market impact needs to be understood.
HTI Consulting has hotel valuation experience across the African continent and is in a position to assist owners wishing to sell their properties.