As a hotel revenue management consulting company, we always say to our clients that location is one of the top selection criteria for travelers when choosing a hotel. And yes, location has a big impact on the demand your hotel will generate, and therefore will influence the price you can ask in the market for your rooms. Hence when starting a new hotel, the site selection process is a key step that should not be taken too lightly.
It is very important to stay objective in the site selection process. It is very tempting to get carried away and look at everything trough pink sunglasses, dreaming of your cool new hotel concept to become reality. Because if the location doesn’t work out the way you thought, you won’t be able to meet your financial projections. And that will bring your newly launched hotel business in all sorts of trouble. Your hotel literally stands or falls based on its location.
Upcoming Neighborhoods
Trust me, it happens all the time. Even experienced hotel chains that are convinced their hotel will clean up the area and be the catalyst for improving an underdeveloped or neglected neighborhood. This sometimes works of course, but many times it doesn’t as well.
A perfect example of success would be Williamsburg in Brooklyn in New York which is a neighborhood that is booming with businesses and popular residential areas, including many new hotels, as Manhattan was getting overcrowded. Mind you it is not the hotels that moved in first, it was the drive by residents that initiated this areas popularity and development thereafter.
In London the same goes for Shoreditch and other East London areas situated between the City of London and Canary Warf. These are bustling and rapidly upcoming areas that people are drawn too to escape the busy center of town. We are actually working right now on the opening of a very exciting new hotel concept in this part of town.
A classic disastrous example in my book would be the 5 star Hesperia Tower in the Belvitge area of Barcelona. I am still wondering what the thoughts were to build such a costly ‘luxury’ hotel in a low income, housing project style neighborhood. Perhaps they hoped the new fairgrounds would have been closer to their hotel location. Because revitalizing the neighborhood would really mean taking down blocks and blocks of residential apartment buildings. And that won’t be happening in our life time I can tell you.
Your Clients Needs
So before we wonder of into la-la land, we have to ask ourselves what the end user, the guest in this case, really wants. What will drive him/her to book a hotel?
- Proximity to demand generators like: business area, tourist attractions, industrial park, college, hospital, airport, major cross road for through traffic, etc.
- Transportation connectivity: roads, taxi, metro, subway, buses, trains, walking, bicycle paths, etc
- Surrounding offering: restaurants, bars, shops, etc.
What location are your guests looking for? How is their price sensitivity? Are they looking for a trade-off between price and location? Or do they prefer to pay premium and be smack in the middle of town on a prime location?
Besides that, what does the location need to offer besides the hotel itself? And how easy will it be to get to where they need to be? Because remember they are not coming for your hotel, they have another travel motive!
We should not forget an important lesson we have learned above, what definitely will not change in the immediate surroundings, which could have a potential negative impact on our hotel business. Yep, don’t forget to take off those pink sunglasses!
So in short, which guest market segments do we target, and what are their needs …
Does your location meet the need of these market segments?
Free Online Research Tools
Location Location Location is what a lot of new marketing websites and social media platforms evolve around. Just take a look at the following travel websites and tell me what you see:
Yes, you got it right, a map!
From these maps you could derive the average price level per star rating for each area over the year. Such a price index will give you valuable insight into the revenue potential of a hotel in each part of town. You will notice that sometimes just 2 blocks can have a large impact in price, especially when you are on the border of town.
A classic example is that OTA include in their general listings first the hotels which are really within the actual official town, and hotels located in neighboring municipalities are not always included in this list, even though it is just across the street. If your hotels location is not part of the main listing of the destination you will see a large decrease in demand. So be careful with which street you are on.
New social media platforms as review website like TripAdvisor, Yelp and Zoover plus and guest reviews on the OTA give us valuable insight in how consumers valuate the location of hotels around you possible location. These scores should be taken into consideration, because if they are too low you would be limited from the start as to how high a score you could achieve.
I would personally have a survey done of the review scores of hotels in the area to gain an understanding how this could impact my overall review score. I would at least want to know I can still reach at least an 8.0 average. But if I would know the location score of the neighborhood is 5.0, I would have no doubts opening a new hotel here.
What Else?
Of course there are other also very important considerations.
- Does the zoning of the location allow a hotel? Or if it doesn’t can it be easily changed?
- Are utilities available at the site? Sewer, water, electric? Gas (optional)?
- Does the size of the land allow for enough rooms to be constructed to reach a healthy ROI?
- Can you buy or lease the building or land? And would the owner consider exchanging part in return for equity in the hotel business?
- How many hotel rooms currently exist in the area? Are the existing hotels successful? Are they chain affiliated or “mom and pop” businesses?
- How many new hotels and rooms are planned for development in the immediate area?
And there are a lot more things to think about before opening a new hotel. If you need expert advice, don’t hesitate to contact our experts in hotel revenue management consulting and hotel management.
The following 2 articles from our blog will also be very useful to get started for now:
