When to Add More Rooms to Your Hotel Property
When does it make sense for a hotel operator to grow the property's room division?
By James Downey Professor, Program Coordinator MBA Hospitality & Event Management, Lynn University | September 09, 2018
Unfortunately, one of the most common methods used by lodging owners and operators for justifying the expansion of its rooms division is one which the lodging industry has continued to use for years -- the level of its annual occupancy (AO) over a sustained and measurable period of time. For example, a hotel with an AO of at least 85 percent over two years might rationalize a room expansion project since this level is well above the national annual occupancy average of 63 percent. The hotel might additionally justify the expansion since they operated at or near 100 percent occupancy over this two-year period. Lodging owners and operators who rely solely on this premise to initiate expansions of their rooms divisions will, more often than not, meet with less than successful results.
Luckily, there are some less-than-obvious -- but more-reliable – room-expansion growth categories which may ease the decision-making process when it comes time to considering room division expansion.
Hotel Room Demand Growth
Most hotels generate their room night demand from three major market segments: (1) Commercial and Business Travelers; (2) Conference and Convention Attendees; and (3) Tourist and Transient Travelers.
While each of these three market segments can grow and decline at different rates, it is the largest market segment – commercial and business travel -- from which hotels continue to derive a significant share of their accommodations business. These travelers tend to stay by themselves, often for no more than two days per week at a time annually. They also are the most demanding market segment since they frequent a hotel more often than the other two segments and usually have negotiated a contract with the hotel to guarantee rates and preferences.
Five factors have the greatest effect on this segment of the hotel business: