Chapter 11 - Forces shaping the hotel business. In this chapter students will be able to: Explain the advantages of observations, focus groups, expert panels, and content analysis; explain the challenges of conducting objective observations; conduct a research observation;. | Forces Shaping the Hotel Business Chapter 11 Copyright © 2010 by John Wiley & Sons, Inc. All Rights Reserved THE ECONOMICS OF THE HOTEL BUSINESS When hotels are in the planning stages, developers must consider: Available financing (can be difficult) Lifespan of the hotel (30–40 years) Length of construction phase (3 years) How supply and demand will change over time THE ECONOMICS OF THE HOTEL BUSINESS Not all hotels that are planned are actually built One primary reasons that hotels do not get built is due to lack of financing Hotels are a capital intensive business and can cost hundreds of millions of dollars to build THE ECONOMICS OF THE HOTEL BUSINESS HVS conducts a Hotel Development Cost Survey each year to determine the construction costs of different types of hotels: Budget/Economy hotels – $53,000 per room Full service hotels – $166,000 per room Luxury hotels – $516,000 per room CLASS EXERCISE Determine the cost to build a hotel in each classification based upon | Forces Shaping the Hotel Business Chapter 11 Copyright © 2010 by John Wiley & Sons, Inc. All Rights Reserved THE ECONOMICS OF THE HOTEL BUSINESS When hotels are in the planning stages, developers must consider: Available financing (can be difficult) Lifespan of the hotel (30–40 years) Length of construction phase (3 years) How supply and demand will change over time THE ECONOMICS OF THE HOTEL BUSINESS Not all hotels that are planned are actually built One primary reasons that hotels do not get built is due to lack of financing Hotels are a capital intensive business and can cost hundreds of millions of dollars to build THE ECONOMICS OF THE HOTEL BUSINESS HVS conducts a Hotel Development Cost Survey each year to determine the construction costs of different types of hotels: Budget/Economy hotels – $53,000 per room Full service hotels – $166,000 per room Luxury hotels – $516,000 per room CLASS EXERCISE Determine the cost to build a hotel in each classification based upon economy hotels with 120 rooms, full-service hotels with 300 rooms, and luxury hotels with 400 rooms Determine the average annual revenue based on average occupancy rates and average daily rates THE ECONOMICS OF THE HOTEL BUSINESS Hotel construction times can range from about one year to close to three years As a result, markets can change during this construction period and new hotel constructions can occur Also, complications can occur such as environmental concerns, historic regulations, and development issues Example: Vieux Carre Commission CONSTRUCTION TIMES Economy hotels – 407 days Midscale without F & B – 479 days Midscale with F & B – 553 days Upscale – 655 days Upper Scale – 994 days All hotels – 578 days HOTEL CYCLES AND FINANCIAL PERFORMANCE The hotel business moves in cycles as a result of the economy, supply, and demand The economy is affected by interest rates, consumer prices, trade, consumer confidence, etc. Supply is the number of hotel rooms available HOTEL CYCLES .
