Hotel Valuation

hotel valuation

In recent years, tourism has shown continuous growth and great diversification, which has led it to become one of the main economic sectors that have been growing most rapidly in the world. Tourism has become a key economic sector. to promote socioeconomic progress at a global level, since tourism is closely related to development.

Tourism plays a fundamental role in Mexico's economy, since it represents 8.5% of the GDP, which represents more than double the OECD average of 4.1% (OECD, 2017).

What is hotel valuation?

A fundamental part of tourism is the hotel industry, which is why it becomes an important factor to analyze in order to create strategies that allow promoting a growing creation of value in the tourism sector.

A few aspects that determine the value of the establishment in the valuation of hotels are: category, age, state of conservation, typology and management.

Why is hotel valuation important?

Knowing the valuation of hotels provides the opportunity to:

  • Expand the property.
  • Access credit.
  • Improve or reassess assets.
  • Mergers, Acquisitions or Spin-off.

Hotel valuation methods

To value a hotel, it is necessary to identify the structural characteristics of the sector, the analysis of indicators or variables and the percentage of occupancy. Possessing this information makes it possible to detect determining factors to boost the competitiveness of a hotel that is already established or that is to be established.

Comparative Market Method or Comparable Sales

This method is used in goods that can be analyzed through their comparison with other goods existing in their market and is based on investigating the demand for the goods, recent purchase and sale operations, rental or rental operations, once there is The information collected is compared, allowing the appraiser to estimate a market value of the asset.

Method by Capitalization of income approach

This method is related to the expected future profits of a hotel and consists of estimating the present value of the property to future benefits derived from owning it given market conditions. This method allows us to quantify the future income of the property, comparing the income of the property of our interest along with others that are similar to it, with this the income that can be generated is calculated through an analysis of the real estate market or by increases ordered by law.

In other words, the income that the property is expected to produce in the future is measured, in order to determine the probable price of the property in the present.

To develop this procedure we have to know the elements that determine the performance of a hotel (value drivers)

Cost Approximation Method

It consists of calculating how much the investment in movable and immovable property could be worth throughout the time, considering the physical conditions of the property as of today, replacing what is being valued, taking into account depreciation according to physical deterioration, obsolescence functional and economical.

Multiples-based method

The most used to measure the economic potential of the rooms for the economic benefit for installed capacity, this method is used to determine the value potential in an exponential sense that allows us to reflect the economic potential.

Why is it necessary to carry out a hotel appraisal?

In the tourism business sector there is great competition to have the best positioning in the area, considering carrying out an appraisal allows the interested party to find comparative advantages with respect to other chains, or helps them detect deficiencies, which will allow them to increase its competition in the sector.

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