The responsibility of providing a clear and strategic design brief lies with the owner, investor, and/or hotel expert. At the very early design stage, we must assess how design decisions impact the Return on Investment (ROI):
ROI = Profit / Total Cost of the hotel
A key rule of thumb is that the total hotel investment should not exceed 1,000 times the achievable average room rate:
Cost per room = Average Daily Rate × 1,000
Common Pitfalls in Rate Assumptions
Many owners and even hotel consultants mistakenly assume that online travel agent (OTA) rates represent the actual achievable room rates. In reality, the achievable rate is approximately two-thirds of the lowest rate available online due to:
• OTA commissions (typically 12–25%)
• Discounted rates for travel agencies and group bookings
• Contracted rates with airlines and corporations, which are lower than OTA rates
The Hidden Costs of Design
Hotel construction costs can escalate due to structural challenges (e.g., difficult terrain, unique architectural designs). However, guests will not pay a higher room rate just because more was spent on the foundation or structure—these elements are invisible to them.
Similarly, overinvesting in mechanical and electrical (M&E) systems—such as air-conditioning, elevators, and water heating—does not justify a higher room rate. Worse, it leads to higher capital expenditure (CAPEX) and increased operating costs (OPEX).
The Importance of Cost-Optimized Design
Profit = Sales – Operating Costs
To optimize profitability, hotel design must consider its impact on operating costs.
Overdesigned M&E systems, for example, not only raise initial costs but also increase long-term utility expenses.
Many in the industry, including myself when I first entered the hotel business, underestimate the fixed-cost nature of utilities—typically, 75–85% of utility costs are fixed, with only a small variable component. I will dive deeper into utility cost optimization in an upcoming post.
Final Thoughts
Every decision that reduces capital expenditure and operating costs has a direct and significant impact on a hotel’s ROI. A well-planned design brief ensures that efficiency, cost control, and guest experience are balanced from day one.
📌 What are your thoughts on optimizing hotel investment costs? Have you encountered similar challenges in your projects? Let’s discuss!
