Hello everyone, today to answer a question from hotel owners, invest in a five-star hotel or a four-star hotel? This is also a question that many owners often ask us. Due to the high amount of investment, complex operation and management, long investment period, and labor-intensive and uncertain daily cash flow in the hotel industry, coupled with the overdevelopment of high-end hotels in some cities and regions, and the oversupply, in the case of increasing operating pressure of high-end hotels and rising development costs of high-end hotels, we have the following suggestions for hotel owners:
1. Accurately grasp the positioning of hotel development.
In view of the continued unsatisfactory level of operating gross profit margin in the five-star hotel market, the first period of five-star and luxury hotel project development has begun to come to an end. Hotels are often one of the components of a real estate development complex, and a five-star hotel is often seen as a tool to enhance the market image of the entire development and improve the residential or **property**, many developers who are developing hotels for the first time always think that they must build a five-star hotel, and ignore the return on investment of the hotel. In addition, developers are generally accustomed to settling big accounts, selling residences, apartments or office buildings, quickly recoup funds, and finally earn a five-star hotel, which is the business model of many developers. However, after years of rapid development, the domestic high-star hotel market is entering a more mature stage, and the competition is more intense. Five-star and luxury hotels are mostly highly capital-intensive projects with large investment amounts and high operating costs, so it is recommended that hotel owners carefully conduct a feasibility investment analysis and determine the positioning of the hotel according to the location, volume, scale, and competing hotels of the project. If it is a first-tier or second-tier city and a core area with scarce landscape resources, you can consider a five-star hotel; If the location of the project is not good and the average room rate of the surrounding competing hotels is not high, for the owners who cannot bear the risk, it is recommended to choose an international mid-to-high-end selected hotel as the development positioning, rather than reluctantly investing in a five-star hotel. In addition, the early positioning of the hotel is the initial work of the project, but there are many owners who have not yet determined the positioning of the hotel when the hotel is capped, which is also one of the main reasons for the delay of the hotel project.
2. Pay attention to the choice of hotel brands.
At present, many international brands have entered China, and owners have felt that there are not many suitable brands to choose from, and some owners have no choice but to choose some new brands with low visibility and recognition, such as some newly acquired brands by hotel management companies. These brands are entering the Chinese market for the first time, and their popularity in China is low, and the owners need to invest more marketing expenses and time to cultivate the brand after opening, and the hotel performance will face huge challenges in the first three years of opening. At the same time, in the construction process, due to various excessive requirements such as brand standards, facilities and equipment, the investment budget will also be exceeded. In real estate complex projects, some owners want to leave more construction area for other formats, thus squeezing the hotel construction area, resulting in the number of hotel rooms being too small, and it is difficult to achieve economies of scale. In this case, there is a ceiling limit on hotel revenue, and the net profit of the hotel owners after the consolidated statement is only negative, and some hotels even face losses at the operating level, and the operating income cannot cover the operating costs and other expenses. If the hotel is located.
In second- and third-tier cities, owners can also consider domestic hotel brands if they only consider the return on investment of the hotel and do not consider other factors. Some domestic brands already have a certain degree of popularity, and the investment is low, and the return on investment of some domestic brand hotels is higher than that of high-end hotels, which is a better choice. In addition, you can also choose an international selection of hotel brands, mainly rooms, only need a restaurant (three meals a day can be cooked), reduce the spa and other facilities that increase investment but have low utilization, so as to ensure the hotel's income.
3. Do a good job in hotel investment cost control.
In the process of construction of the hotel project, on the one hand, the owner will have unclear assumptions and insufficient estimation basis due to incomplete design in the early stage of positioning, and the standard is considered conservatively in the estimation, resulting in low investment estimates; On the other hand, due to the owner's lack of experience in hotel development, lack of professional ability in cost control, coupled with the high requirements of the hotel management company and the high configuration of the design unit during the implementation of the project, the project did not carry out design optimization and cost review in a timely manner, resulting in high project costs. These two reasons will cause a large gap between the construction cost and the investment estimate, resulting in the project construction exceeding the budget. In order to better control the cost of the hotel project, the hotel owner should strengthen the determination of the preliminary design plan and product positioning, clarify the actual function of the product, strengthen the review of bidding drawings and design optimization, clarify the technical requirements, and try to avoid more new projects that are difficult to control after the contract is signed. It is suggested that in the early stage of hotel project development, all parties involved in the project construction can participate in the positioning and design of hotel products at a deeper level, strengthen the grasp of standards and the needs of functions, try to eliminate the phenomenon of rework, and reduce the cost loss of design adjustment, nest work and rework due to unclear product positioning and over-standard design in the early stage of the contract.
Fourth, do a good job in hotel restaurant planning.
Most five-star hotels have very difficult restaurant operations, and the gross profit of the catering department can reach 35%, which is already very high, and the restaurants of many hotels are either basically flat or loss-making. Hotels with higher F&B revenues typically have lower gross margins. Labor costs in catering are high, especially for chef teams. Comparatively speaking, the margins of guest rooms are higher than those of food and beverage. Unless the market demand for food and beverage in the vicinity of the hotel project is strong and the food and beverage is expected to be profitable, the number of restaurants should not be high, and flexible multi-functional spaces can be added to increase the utilization rate. Normally, if the hotel has too many restaurants and the demand market is insufficient, it will pull down the hotel's operating gross profit margin.
At present, some well-known real estate companies in China are more cautious about investing in five-star hotels, from which we can see some of the market trends. Therefore, we suggest that hotel owners should carefully position the hotel project before investing in the construction of the hotel, determine the grade of the hotel, strictly control the investment amount, and consider whether the hotel can achieve higher profits and high benefits in the future when they want to enhance the positioning of the overall comprehensive development project and show its brand effect. Invest in hotels that aim to achieve a revenue per square meter close to that of commercial and office buildings, making them a more attractive investment product.
By Northstar Hospitality Asset Management.