Renovations: Meeting Changing Market Demands

Address how changes in market culture lead to changes in ownership and increased upgrades/renovations

By Fred B. Roedel, III Partner & Managing Member, Roedel Companies, LLC | November 27, 2011

We have all been through a very trying economic period in the hotel industry during the past few years. Customers are continuing to expect more features & benefits from hotels, brands are challenged to design and implement brand standard changes that differentiate their product and provide the investor the opportunity to maximize revenues and market performance and Owners are constantly challenged with meeting their return on investment requirements and expectations while trying to keep up with the changing culture of customers and brands.

This constantly evolving environment will cause some owners to divest of assets versus investing in them and provide an opportunity for other owners to position their hotels to maximize their revenue, free cash flow and long-term investment return as markets improve.

Being the Best Hotel in a Market

The objective of any hotel owner/investor should be to develop and operate a hotel that performs at the top of its market. Every market is different in some way, but what is not different is that the paying customers ultimately determine what hotel will be a top RevPAR performer.

One key culture change in the hotel industry is that customers are expecting hotels to provide them with similar, if not better, features and benefits that they have in their own homes. Examples include faster high speed internet, HD television content, rooms with quality furnishings and finishes and an overall experience that lets them relax while they are not in their own homes. Today's customer are experienced, they know what they like and don't like, they can determine the overall condition of a hotel very quickly, they recognize if a hotel is well maintained and they make their purchasing decisions accordingly. If owners allow their assets to become poorly maintained and don't stay on top of their respective markets, to know if and when they should be investing in certain improvements, they will have little opportunity to capture the market that does exist and maintain their overall investment.

Three years ago our firm made the decision to renovate all of the guestrooms in one of our hotels. This particular property consistently received very high quality scores from the brand and we had no issues with our customer base, but the hotel had been open for 8 years and its decor had become dated against the latest standards of the brand. Most thought we were crazy to be investing the dollars we did during that challenging and worsening economic period. That investment allowed the hotel to maintain its customer base, pick up additional accounts that had been staying at "newer" hotels in the market and we have since been able to drive rate more aggressively with the improving market. We did not renovate the entire property; just the areas that, if not improved / renovated, would most negatively impact our ability to maximize occupancy and revenues. With the improving economy we have the plans in place to renovate the balance of the hotel in the next year.

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Sales & Marketing: Selling Experiences

There are innumerable strategies that Hotel Sales and Marketing Directors employ to find, engage and entice guests to their property, and those strategies are constantly evolving. A breakthrough technology, pioneering platform, or even a simple algorithm update can cause new trends to emerge and upend the best laid plans. Sales and marketing departments must remain agile so they can adapt to the ever changing digital landscape. As an example, the popularity of virtual reality is on the rise, as 360 interactive technologies become more mainstream. Chatbots and artificial intelligence are also poised to become the next big things, as they take guest personalization to a whole new level. But one sales and marketing trend that is currently resulting in major benefits for hotels is experiential marketing - the effort to deliver an experience to potential guests. Mainly this is accomplished through the creative use of video and images, and by utilizing what has become known as User Generated Content. By sharing actual personal content (videos and pictures) from satisfied guests who have experienced the delights of a property, prospective guests can more easily imagine themselves having the same experience. Similarly, Hotel Generated Content is equally important. Hotels are more than beds and effective video presentations can tell a compelling story - a story about what makes the hotel appealing and unique. A video walk-through of rooms is essential, as are video tours in different areas of a hotel. The goal is to highlight what makes the property exceptional, but also to show real people having real fun - an experience that prospective guests can have too. The June Hotel Business Review will report on some of these issues and strategies, and examine how some sales and marketing professionals are integrating them into their operations.