Renew or refresh

For underperforming hotel assets, the success of a renovation, repositioning, or rebranding project depends on a clear strategy, coupled with an understanding of the operating dynamics of the hotel. A well-planned and executed project not only enhances the guest experience, but also delivers strong ROI.

A renovation assessment, or property improvement plan (PIP), is a core component of the analysis to define the strategy.

This methodology, coupled with a data driven approach, provides the most substantial impact relative to the time and investment required, setting the foundation for successful projects.

Communication and design
The starting point of any successful renovation project is clear communication and a strategic design process. The goal is to create a design that enhances the guest experience while ensuring the renovation stays within budget to achieve the desired ROI. This begins by defining key metrics and data aligned with the primary project drivers and stakeholder goals, significantly reducing compromise, and speeding up the project timeline.

Hotel renovation projects often face challenges at the outset due to isolated budget discussions, without proper understanding of the metrics for success. When these metrics lack relevance to the specific project or property, missed opportunities and delays can occur. It is essential to evaluate whether changes to the asset will yield the required revenues to support ROI post renovation, or repositioning. This approach ensures that the scope is fully aligned with the project's drivers, and a return on the investment.

The importance of metrics
A renovation assessment is about aligning existing metrics with future targets, leading to an assessed revenue forecast and a solid budget and ROI analysis. In today’s market, metrics such as RevPAR may be less significant for renovation planning compared to say market share or Market Penetration Index (MPI). MPI measures a hotel's position relative to its competitors, revealing valuable insight to demand, which can help shape future strategies.

In addition, gathering data such as guest satisfaction surveys, online reviews, and Net Promoter Scores offers valuable insights into how the hotel performs over time, providing a benchmark for improvement.

Hotel operators understand the importance of great guest reviews. Sentiment analysis -assigning positive, negative, or neutral scores to customer reviews - offers a clear view of guest satisfaction. Analysing reviews allows hotels to understand what works, what does not, and how they can improve the guest experience. This insight can directly inform renovation decisions and help build a stronger reputation, leading to increased market share.

Establishing the right metrics
The process of establishing metrics should involve a balanced, data-driven approach, considering all relevant factors. An area analysis should determine the highest and best use of revenue-generating spaces, while also factoring in operational efficiencies and potential cost reductions in future capital expenditure or maintenance.

It is vital to explore multiple renovation options through a sensitivity analysis, aligned with the target metrics, to encourage discussion among stakeholders and ensure the best path forward. Key to this analysis is market research: understanding the reasons behind the hotel’s underperformance, or need for change, evaluating market dynamics, demographics, and economic factors. The hotel’s physical condition, its highest and best use scenarios, and its position in the asset cycle are critical to renovation decisions.

The owner’s investment criteria such as investment size, holding period, desired hurdle rate, and risk tolerance will significantly influence the renovation process. These factors must align with the defined metrics and budget to ensure a successful project outcome.

Contribution analysis, which examines whether a shift in brand, system, or marketing position could create a positive impact, and therefore also plays an essential role in the review.

Turning insights into action
Once data is collected through research, communication, and analysis, the next step is synthesising the information to develop actionable investment scenarios. The correlation of various metrics can be complex due to their interdependent nature.

With proprietary tools and techniques, Pragma offer dynamic budget definition, renovation assessments, and PIPs, which provide actionable content and reasoned scenarios, driving further discussion and ensuring alignment with project goals. These insights set the stage for successful renovations and guide long-term asset management strategies, fostering a unified vision for project success. The Pragma methodology also applies to adaptive re-use of existing properties when considering a change of use to a hotel, residential, commercial, or retail asset.

Paul Boldy