By Korosh Farazad – Entrepreneur, Investor, Author and Speaker – Founder of the Farazad Group (www.koroshfarazad.com)
Hotels are doing well in the current hospitality market. In terms of average daily rate and average occupancy rate the figures have far exceeded pre-covid 2019 figures. We are anticipating for this trend to continue onwards for at least to the next 12-18 months. For example, on one hotel that we are carefully assessing and monitoring, the currentoccupancy is over 100% with the entry category room starting at £140 per night and therefore due to the demand and shortage of supply we had to transfer those guests to nearby hotels. The average daily rate has increased over 100% as well, showing that there is peak demand.
Hotels do make a profit from short-stays, subject to the quality or the category of the hotel (whether it is a five star or four star, etc). A four star hotel doesn’t mean that it is of low quality, it just means that it is of a standard quality. If these types of categories have other revenue streams more focused on food and beverage then they can improve on the revenue on top of the room revenue that they make. Speaking in London, an average person would stay for two nights, so that is roughly anywhere from 27-47% net profit on one room from food & beverage alone.For the rest of the UK, it is subject to the destination you are looking at. If it was one of the major gateway cities across the countries, then a similar theme would follow London with revenue and current demand.
If the quality and standard of the rooms in the hotel meet the guest expectations, the price for that particular room matches the expectations of the consumer as well and therefore has more profitability. Hotels can also change the price of the room depending on the day, similar to the stock market in a way, which is a trend that is happening in the UK but across western European countries as well. For example, the price for a room on a Thursday is likely cheaper than that of a Friday, usually for around 20% and affects those short-term extended weekends.
We as hotel investors are seeing an improvement in terms of inward investment in the hotel sector. We are also seeing less of a trend in spending a significant capital expenditure on big improvements, but rather on softer capital expenditure. Doing heavy refurbishments are now not as much of an interest for owners/investors as they’re trying to minimise on their expenditures and improvements and maximise the profitabilities. Once they have reached a certain benchmark of returns, then they will close the hotel down to make big improvements and make a higher ADR.
Demand for hotels in big cities, like London, will always be there. London for example is a cosmopolitan city and every part of the world wants to come here. It is seen as a high demand destination in terms of food and beverage, diversified concepts and for hotels.