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Article by Kasia Russell & Bomie Kim

2016/17 United States Hotel Franchise Fee Guide

HVS 14 September 2017
Please note that the study results are not indicative of the impact an individual brand may have on a hotel's overall profitability because only the costs, and not the benefits of the franchise affiliations, have been analyzed. Furthermore, the study does not reflect, nor does it claim to address, operating results of any one brand or any particular brand affiliation upon any single hotel property. The 2016/17 U.S. Franchise Fee Guide is meant to illustrate a basic comparison among franchise fees charged by participants.HVS has extensive experience with assisting clients in selecting the appropriate franchise and/or management brand for their proposed or existing hotels. This service also includes assisting with or managing the negotiations in coordination with experienced attorneys and other industry professionals.Types of Hotel Franchise FeesBrand attributes play a crucial role in a hotel investor's choice of franchise affiliation. When evaluating a potential hotel franchise, one of the important economic considerations is the structure and amount of the franchise fees. Second only to payroll, franchise fees are among the largest operating expenses for most hotels.Hotel franchise fees are compensation paid by the franchisee to the franchisor for the use of the brand's name, logo, marketing, and referral and reservation systems. Franchise fees normally include an initial fee with the franchise application, plus ongoing fees paid periodically throughout the term of the agreement.Summary of FindingsDisclaimerHotels are complicated investments. Selecting an appropriate franchise affiliation for a property entails exhaustive research and investigation by an investor. The information presented in this guide was developed to provide insight into franchise-fee structures and should not be relied upon by an investor other than as a preliminary resource. HVS has researched and gathered data from authoritative sources, and all efforts have been made to verify the accuracy of these data; however, given variances in reporting methods and franchise terms, HVS cannot guarantee the accuracy of all the data contained in this study. Finally, it should be noted that the 2016/17 version of this guide is not necessarily comparable with previous versions because of the new methodology of calculating franchise costs, which considers historical data for each brand and does not subject all brands to uniform assumptions.Click Here for a Complimentary Copy of the 2016/17 HVS Franchise Fee Guide
Article by Erica Arnold and Alice E Campbell

The Evolving Workplace

HVS 3 August 2017
The workplace is experiencing a dramatic evolution as Millennials begin replacing Baby Boomers at an exponential rate. According to the Bureau of Labor Statistics, by 2025 Millennials are estimated to represent three quarters of the workforce. As a result, there has been a disruption of traditional company culture that isn't exclusive to advancements in digital technology. In many companies, what began as a "water-cooler" culture is being replaced with a high-end cappuccino machine and meditation room. Workers now expect more comforts, more conveniences, and better opportunities for advancement than ever before. They also demand that their company of choice have a heart, give back to the community, and promote empathy and inclusion.In exchange for an enhanced work environment, employees can sometimes expect to spend longer hours in the office and tied to a mobile device, albeit with a flexible schedule. Largely employees once experienced an "in and out" office-based occupation, with formal dress in roughly a 9 to 5 environment. Now there is an expectation of a relaxed office culture featuring casual dress, good food, a social conscious, and fun.Some changes we have observed in an office environment are as follows;Health and wellness programs, nutritional and chemical dependency counseling, yoga, massage, and acupuncture servicesHealthy living seminars, cooking classes, on-site haircuts, and stress reduction workshopsMeditation roomsFlexible vacation and extended maternal/parental leaveSubsidized dining facilities and in-house nap roomsErgonomic workstations with standing desks and stability ballsPaid gym and sports membershipsCorporate community service days and donor gift matching programsTech and startup companies set the bar for the evolving expectations of today's workforce. This phenomenon has trickled down to other industries such as hospitality. We have identified three companies that have achieved an evolved work environment across the hospitality sector and as a result they are experiencing better retention and attracting top talent. This is noteworthy in today's labor market where tenures can be short and competition for employees is at an all-time high.Hospitality TechnologySquaremouth Inc. is a digital company that has achieved a unique balance of work and fun in their office. This emerging tech leader in the digital travel industry has a workforce of 75% millennials and a 97% approval rating from its employees. Squaremouth quickly identified that you don't always have to incentivize employees with money. It's the intangibles that build loyalty from millennials, a generation that average a one-year tenure with a company.Some of the ways Squaremouth has created a favorable work environment are:Unlimited paid vacation each yearQuarterly profit sharingCompany-paid tripsPersonal use of the company boatWeekly lunches and happy hoursSponsored continued educationCasual dressOpen office conceptBeer on tap at the officeSquaremouth's Florida headquarters also features arcade games and a snooker table employees can use at their leisure. According to their website, Squaremouth employees enjoy a relaxed corporate atmosphere where one can sit shoeless at his/her desk. Colleagues are also seen as friends, the office is fun, and due to a promote from within culture, employees have little incentive to look elsewhere for career advancement.HotelsKimpton Hotels has always boasted a unique and engaging culture, and the hotel company continues to evolve its workplace to attract top talent. Named the 14th best place to work by Forbe's Fortune 100 Best Companies, Kimpton's employees thrive in a flexible and inclusive environment with an empathetic culture. Of Kimpton's 8,142 employees, 94% say their opinions are heard, they are celebrated as individuals, and that they are proud to work for the company. According to Ginny Too, Kimpton's SVP of People and Culture, this is a conscious effort made by the company to set them apart as an employer of choice. She says, "What makes Kimpton a great place to work is that we hire people with passion and heart. There's no book that outlines how we demonstrate empathy and connect with one another, so it's imperative that we attract people who share these qualities. Our leaders continue to reinforce this through role modeling and coaching. That's what helps foster a culture of heartfelt care with our guests and between employees." Kimpton offers flexible schedules (when possible), allows employees to bring pets to work, and has an on-site fitness center, fully-paid sabbaticals, benefits for same-sex couples, and partial college tuition reimbursement.Other benefits include:Pet bereavement leaveChildren and elderly backup careSix weeks of paid maternal and paternal leaveFree snacks and beverages during the dayFree lunch dailyThe company's lack of corporate hierarchy and promote-from-within culture empowers employees and fosters loyalty.Early on Kimpton recognized that a growing standard for corporate culture is an ethical environment that gives back to the community. Ms. Too stated, "Today's employees are interested in working for companies that mirror their core values. Kimpton's corporate social responsibility practices have been a fundamental pillar of our culture. Our focus areas include individuality and inclusiveness, health and wellness, and the environment - all of which resonate and are driven by our passionate employees."RestaurantsAccording to an Associated Press-Gfk poll, Millennials are more likely to say that citizens have a "very important obligation" to volunteer. Millennials have been exposed to volunteering and fundraising in more areas of their life than their older generation counterparts. One of those areas is their place of work, where employee volunteer days and giving programs are becoming more common. "According to the 2014 Millennial Impact Report, one-third of millennials surveyed said their companies' volunteer policies affected their decision to apply for a job, 39% said that it influenced their decision to interview, and 55% said that such policies played into their decision to accept an offer," as stated by Forbes.Texas Roadhouse has a company culture of people and community first. With almost 500 restaurants in 49 states and five countries, Texas Roadhouse employs 48,000 people, of whom 94% "feel good" about how the company contributes to their community.In 2002, Texas Roadhouse created Andy's Outreach Fund, a non-profit charitable trust to help employees during medical emergencies, death, fire, natural disasters, personal injuries or crises, and financial hardships. Since its inception, Andy's Outreach has benefited more than 5,000 employees and has given employees over $5.3 million during times of crisis. The nonprofit has a separate school supply program to furnish everything an employee's child may need for school as well.Texas Roadhouse's commitment to establishing a unique and inclusive company culture is evident both in their corporate office and individual restaurants. At its inception the Texas Roadhouse team made sure to implement a culture of family and fun into their organization."Our break room was this tiny kitchen in the corner. Every Friday, Kent [Taylor, founder of Texas Roadhouse], would wheel a cooler in full of beer. At three o'clock, we'd sit and have a few beers and talk about what was going on. We still do those social events where we all get together, even as big as we are. I think that's the one thing we've really worked hard at -- to make sure we're keeping that culture alive," says Senior Investor Relations Director, Tanya Robinson. To perpetuate this endeavor each restaurant has a "fun budget" so they can go bowling, throw pizza parties, and ensure that their environment is a balance of social and work.In an article in Harvard Business Review, Tony Schwartz notes that a key concern for employers is "how to best attract, manage, and retain Millennials, who now represent the largest generation in the workforce, expect more flexibility in the way they work, and prefer to work for employers with a mission that goes beyond maximizing profit".Fueled by a deluge of Millennial employees, companies are adapting to changing expectations of dress, offered amenities, workspace, benefits, and corporate culture. We have observed that a stodgy formal office environment is a thing of the past. Younger employees are attracted to companies with a more compassionate, holistic, and even fun environment prompting some organizations to play catch up.
Article by Daniel J. Voellm

Advanced Industry: The Driving Force Creating New Hotel Markets In China's High-tech Zones

HVS 16 September 2016
High-tech development zones, areas representing the cutting edge of the high-tech industry, have been a driver of the economy and a window to the outside world for many cities in mainland China. Since 1991, the State Council has approved 105 national High-tech Zones in total, most of which cater to the heavy industries. However, with the continual development of China and the appearance of China's current 'L' economy, these High-tech Zones begin a transformation process and seed new industrial clusters, with an increasing share of producer service and financial services. For example, in the Bejing Zhongguancun Science Parkthe added value of the producer service industry in 2015 was doublethat in 2005, accounting for almost 50% of GDP in Beijing Zhongguancun Science Park. Producer services normally includes financial services, information services, technology services, commercial services and distribution services.Meanwhile, the rise of these High-tech Zones attracts massive investments from real estate developers driving investment in office, retail, residential and hotel assets, providing essential complementary uses with supporting facilities and amenities to the High-tech Zone. The study of hotel development in the urban fringe of High-tech Zones provides clues as to which factors will have a direct impact on the hotel's location, grade and classification in the different stages of the High-tech Zone. Therefore, we selected six representative High-tech Zones from domestic tier-1 and tier-2 cities, which include Beijing, Shanghai, Shenzhen, Xi'an, Chengdu and Wuhan. The study focuses on the development of industrial clusters and the different derived real estate types in these six High-tech Zones as well as the ratio of each hotel type in terms of guest rooms. The article reveals prevalent trends in these regional hotel markets and gives recommendations to parties interested in investing in High-tech Zones. Sources of the article are from the official website and annual report of each High-tech Zone, CNTA and HVS research.
Article by Justin Kaminski and Breanna Smith

An HVS Guide to Hotel Revenue Management

HVS 22 July 2016
often frequently throughout the day--and make tactical decisions on rates over the next 90 days. It is extremely important to have longer-term strategic pricing guidelines in place that are determined annually in strategy meetings with hotel leadership. These long-term rate strategies serve as a basis for adjusting rates during shorter-term tactical initiatives.Typically, hotel management will employ one of the two following strategies to price rooms. The first is a"weekday versus weekend" strategy, with one guestroom rate for Sunday through Thursday and another for Friday and Saturday. Another approach is known as the "dynamic" pricing strategy. Used to maximize pricing during the highest levels of occupancy, the dynamic approach also allows the flexibility of offering lower guestroom rates on shoulder nights around peak occupancy days, as well as on weekends.Hoteliers will also home in on pricing for specific segments of transient demand, including commercial, leisure, government, and extended stay. Examples of pricing strategies specific to these segments are listed below.Special Corporate Pricing: Commercial guests, defined as those traveling on business, will frequently book within a shorter period, and typically have a larger budget for travel. Larger companies will often negotiate for special rates given the high levels of business they produce for a hotel. These negotiated room rates may be offered locally or across multiple properties nationally and help establish a strong occupancy base for hotels. In markets with limited corporate demand, hotels will often offer one commercial rate for business travelers.Leisure Packages and Advance Bookings: Leisure demand designates hotel guests traveling on vacation, visiting friends or family, and for other reasons not associated with a business purpose. These guests are characterized as price-sensitive travelers, prone to search for the best deal. Hotel management will offer a variety of special rates and packages designed to add value for leisure guests. These packages may include free amenities such as breakfast at the hotel or tickets to a show or other local attractions. Another pricing tool is known as the "advanced purchase rate." This discounted rate normally requires an advance reservation with a full, usually non-refundable deposit, appealing to leisure guests with definite travel plans made well ahead of the date of travel.Contract Agreements: Contract agreements are designed for industries that need a constant supply of guestrooms. For hotels located near an airport or a major seaport, for example, contract agreements with airlines or cruise ships can be an effective pricing strategy. Hotels with a large supply of guestrooms often benefit from these agreements, which can provide a foundation for consistent occupancy. It is important to note, however, that these agreements are often secured at lower rates given the large quantity of room nights provided throughout the year.Third-Party Booking Agencies and Online Travel Agencies: Third-party booking agencies and online travel agencies (OTAs) allow guests to book hotel rooms, along with flights, rental cars, and other travel conveniences, online. These entities typically operate in one of three ways."Merchant" websites (e.g., Expedia, Orbitz) offer guestrooms for a given date from hotels in a market, and guests can search among selected hotels by name. Merchant sites then receive a commission for each guestroom booked. Independent hotels can limit the number of rooms allotted to the merchant sites on any given day, but most branded hotels cannot."Opaque" hotel booking websites (e.g., Hotwire, Priceline), by contrast, offer guestrooms by rate, without identifying the hotel by name until after a guest has chosen and finished the booking. Opaque sites allow hotels to offer deeper discounts without violating rate-parity agreements, which compel hotels to offer consistent pricing across the brand.Beyond these, there are "metasearch" websites (e.g., Kayak) that provide a "one-stop-shop" listing of hotel room rates, directing guests to either a hotel's website or a third-party website for booking (whichever has the lowest rate or best meets the search criteria).The graphic below provide some examples of each type of company, as well as some pros and cons of each from the perspective of hoteliers regarding third-party sites as a whole.Direct Bookings: Direct bookings through brand-managed websites have become increasingly popular at hotels, which offer special rates and conveniences to guests who book directly. Common offers include complimentary wireless Internet, a percentage discount, a complimentary room upgrade, late checkout, or other incentives. Direct bookings and associated rewards also help increase brand loyalty, as well as freeing the hotel from commissionable payments to third parties and the reduced risk of rate parity.Hotel companies have continued to promote direct bookings with advertisements and appeals to frequent traveler members. Major hotel brands including Marriott, Hilton, Hyatt, InterContinental Hotels Group, Wyndham, and Choice have begun to aggressively encourage direct bookings at company hotels. The discounts offered by the brands are now a direct challenge to the OTAs and provide owners with the ability to increase the average rates they would receive from the OTAs.Inventory ManagementIn addition to determining pricing strategies for transient guests, revenue management involves management of the hotel's physical inventory of guestrooms. Revenue managers maintain inventory through "straight-line availability," that is, a process of ensuring that all guestroom types are available at all times. This allows guests to continue booking specific room types, as well as long-term stays, by ensuring a certain number of each type of room is available each day. Revenue managers must also recognize when certain room types should not be made available, such as on high-occupancy days. This allows higher-rated rooms to sell, maximizing revenue.Some hotel companies now have revenue-management systems that help manage inventory, as well as pricing, by forecasting demand by room type and occupancy. Inventory management is especially crucial and complex during a property renovation, when a selection of the hotel's rooms is out of inventory.ForecastingHotel management relies on accurate occupancy forecasts for the basis of hotel operation, including all staffing, supplies, and food and beverage needs. These forecasts influence minor and major decisions aimed at running a hotel as efficiently as possible. Similar to pricing, a hotel's occupancy forecasts are made continually and based on reviews of historical data and current trends.The newest sophisticated revenue-management systems forecast by market segment so that rates per different channels and sources can be adjusted to maximize revenue. For example, revenue managers will compare the hotel's year-over-year occupancy levels to gauge where bookings stand for specific timeframes. Management will also evaluate the more recent trends, such as the current guest-booking window and the 90-day room-night trends.While historical information helps guide the process of pricing and inventory management, a view on current trends is essential to gauge changes in the market (such as new supply and economic factors), as well as guest preferences and buying behaviors.MEETING AND GROUP BUSINESSMeeting and group demand capture forms the second half of a hotel's revenue-management strategy. Groups normally need a block of at least ten guestrooms over a defined timeframe and may require meeting space, as well. These groups can include commercial or leisure guests and can book anywhere from 30 days to several years prior to their dates of stay, depending on the size and scale of the group and/or meeting.The following presents some considerations for an effective meeting and group revenue-management strategy.Group CeilingA hotel's "group ceiling" refers to the maximum number of rooms dedicated to group blocks for any given day of the week. This ceiling is defined, essentially, by how many rooms need to remain in inventory to maximize full revenue potential with transient segments. This can vary by season, market, and type of hotel. Hotels with fewer guestrooms relative to those in their competitive set should be more selective with their group bookings and careful not to displace more higher-rated business, while larger hotels have more flexibility.Meeting SpaceRevenue managers need to evaluate if and how much meeting space is needed when booking groups. Considerations for evaluating a group's meeting space needs include:These considerations help determine whether and to what extent group bookings align with the overall revenue-management strategy at a hotel. They also apply to determining whether a hotel can maximize revenue.Displacement Displacement refers to the amount of business being displaced by booking meetings and groups at a hotel. Managers begin to gauge displacement based on an evaluation of demand from this segment in the current year versus the one prior, including which groups have been confirmed, which are tentative, and which are prospective. This is then compared against projected transient room-night demand and rates over the same timeframe, as well as local events that may produce spikes in demand.Hotel managers use a series of questions to evaluate the positive and negative impacts of group bookings, including how and to what extent meeting and group business may result in displacement. These include:How much revenue will a meeting or group booking create for the hotel in the form of room nights, food and beverage, and/or meeting space rental?Does the meeting or group booking threaten to displace higher-rated transient business?Could taking smaller groups at a higher rate sell out the hotel in other segments?Is the group a rooming list or a call-in?Will the group sign a contract with attrition for rooms not occupied?Does the group have a history at the hotel (or at another hotel) from which data can be drawn and evaluated?The range of such questions will depend on a hotel's size, service level, and attributes of its market. However, focused inquiries of this type are essential to maximizing revenues when bidding for group business.Citywide EventsIn metro markets with large, dedicated convention facilities, demand capture from "citywide" conventions becomes a central component to maximizing hotel revenue. The biggest citywide events, such as the Super Bowl or the Global Consumer Electronics Tradeshow in Las Vegas, can create enough demand to saturate local hotels and even expand to surrounding markets. The influx of demand from these kinds of events also allows hotels to command much higher room rates and capture definite lengths of stay.Smaller-scale, lower-rated citywide conventions and events can also generate significant demand; moreover, hotels can command higher rates through guests booking outside of a prearranged citywide group block or through transient guests booking at the same time as but not affiliated with the convention/event.Because they have so much to do with a hotel's profits and operational efficiency, revenue-management strategies ultimately play into a hotel's value. Although a valuation does not include an explicit assessment of a hotel's revenue-management strategy, some knowledge of a hotel's successes and challenges in this regard is inherent to a comprehensive appraisal.The following chart examines how two revenue-management strategies, one extensive and the other more limited, give an appraiser a more thorough understanding of a hotel's operation.ConclusionOver the course of its evolution since the 1970s, revenue management has continued to challenge and reward hoteliers. Effective revenue-management strategies have become more complex in the age of fast-moving technological innovations, and software-based strategies that gather and draw from wide-ranging datasets have become the norm for hotel brands.The importance of an experienced management team, however, cannot be displaced when it comes to using data to hone a revenue-management strategy focused on transient versus meeting and group business at a hotel. Overall, efficient hotel operations depend on revenue managers keyed in to all elements of a hotel's dynamics, including rates, occupancy, demand, and competition. The right blend of smart technology, experienced managers, and well-honed strategies, in the end, forms the basis of successful revenue management for any hotel.
Article by Russell Kett

Fall In Average Revpar Suggests Hotel Property Market Has Reached a Plateau

HVS 11 May 2016
The UK's hotel market saw its first decline in average RevPAR (rooms revenue per available room) in four years during the first three months of 2016 adding further fuel to the suggestion that the peak of the hotel property market may have been reached. According to the latest Hotel Bulletin: Q1 2016, published by HVS, AlixPartners and AM:PM, a poor start to the year for hotels in Aberdeen saw RevPAR fall by 37% year-on-year, skewing overall results across the 12 cities analysed. Even excluding Aberdeen's results, the overall market grew by only 1%, its lowest increase since Q1 2012. While London remains a popular destination for Russian and Chinese visitors and investment continues to pour into the city, hotels in the capital saw RevPAR decrease by 2% in Q1 2016, their fifth consecutive quarter of flat or declining figures. 'These figures give us a strong indication that the peak of the UK's hotel occupancy market has been reached and the growth we are seeing now is rate driven rather than occupancy driven,' said HVS chairman Russell Kett. 'For the moment there continues to be strong interest in hotel investment in most parts of the UK, which could continue into 2017, but investors are currently delaying decisions because of uncertainty fuelled by a combination of terrorism concerns, the forthcoming Brexit vote, China's economic situation and the US elections. 'There is a risk that some operators will cut rates in an attempt to stimulate demand, forcing competitors to follow suit. Once room rates fall across the hotel sector the likelihood is that values will soften. This is a big concern for London's hoteliers, particularly with the large number of bedrooms due to open in the next 12 months unless demand starts to pick up again,' he added. According to Hotel Bulletin the best performing city in Q1 was Cardiff, with an average RevPAR increase of 8%, largely due to the World Half Marathon Championships in March. The fact that demand has not been constrained by new supply means that Cardiff has been in the top three best performing cities for the past four quarters. Since December 2011 only 18 new bedrooms have opened in the city. Birmingham was the second best performing city in Q1, with RevPAR growth of 7%, despite supply growing by nearly 800 bedrooms over the past two years. Investment in Birmingham airport means that this trend is likely to continue as new flight routes come on stream. The hotel sector has long been seen as a barometer of the wider economy, says Hotel Bulletin, albeit with inevitable regional variances. In recent months there has been a modest but perceptible shift in sentiment, especially in the investment community where a much greater sense of caution is being adopted over future growth prospects. Download the Hotel Bulletin: Q1 2016 by clicking here.

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