Posted on Friday, 28 October 2016
The purpose behind any economical investment is the return on investment. This applies to the hospitality industry as well, where the investments can go up to incredible sums and the risks simultaneously therewith.
This is why, in order to transform an average hotel into a profitable business, often times calls for a property renovation or even a complete facelift, namely a hotel conversion.
What hotel conversion means and what’s the difference between a hotel renovation and a hotel conversion is what we’re debating in this article, so keep reading.
Renovation refers to all the repair and upgrade work and their costs, that aim to improve the hotel and upgrade it to the current business standards, in terms of comfort, utility and design.
A hotel renovation can be partial or complete, namely to improve certain parts or aspects of the hotel or the hotel in its entirety. In other words, hotel renovation means improving the hotel but keeping the same characteristics and functions.
Conversion, on the other hand, oftentimes includes the renovation of the hotel together with changing the status of the hotel and reclassifying it in a superior class or affiliating it to a hotel chain brand.
Of course, before deciding for on or the other, you need to consider a few crucial points, that are:
Competition evaluation and the changes they made to the local hospitality market, if any
The direction in which the market demand is heading, if there is significant change
Your total budget for the matter
Whatever your decision will be, a well-done renovation or a successful conversion, in most cases one or the other is a sine qua non condition to keep your hotel business afloat. Let’s take a closer look.
Hotel Renovation Pros and Cons
The first and most obvious pro when you go for a hotel renovation is of course, the fact that is a smaller scale project compared to a hotel conversion. In most cases a hotel renovation includes aspects that regard finishing, facilities and equipments.
Thus, another important advantage that comes with a renovation is that you are able to stepwise the project so that closing up the hotel while renovating it, is not mandatory.
Of course, this measure depends on the amplitude of the works, and whether they may be inconvenient for your guests. It’s up to you to decide.
More so, renovating a hotel comes at a lesser cost that a complete overhaul of the hotel. But this is also the main shortcoming of a hotel renovation: the room prices cannot rise up too much, compared to the prices before the renovation.
In short, a minimum hotel investment will bring modest revenues with it. If a hotel renovation is what you need, you can read a previous blog post we wrote on this matter: 3 Things to Consider when Renovating a Hotel.
The Advantages of a Hotel Conversion
A hotel conversion implies larger-scale works, especially when talking about joining a large hotel brand. In this case we are talking about a new brand identity and a complete facelift in terms of hotel design and facilities.
The biggest disadvantage of a hotel conversion is the cost of this investment that can be quite high.
We are talking about a completely new hotel from scratch, and this often means that the project cannot be staggered, and in this case the hotel cannot be opened to visitors while the conversion process takes place.
At the same time, reclassifying the hotel into a higher class category means higher revenues for hotel, improving the hotel’s financial performance.
However, there are studies, like the one conducted in 2015 by Cornell University School of Hotel Administration entitled Hotel Brand Conversions: What Works and What Does Not, which has concluded that switching from one brand to another is not positively correlated with hotel revenue growth, which makes us believe that there are certain risks that come with taking this decision.
Whether you want to build a new hotel, renovate it or upgraded it to a higher class, the process is complex and never risks-free. However, you can significantly reduce the risk, by defining the objectives of the projects with more clarity and by gathering information to help you make an informed decision.
Calirom is your reliable partner whether you want to renovate, to convert, or simply to increase the standards of comfort and tech in the hotel you manage. Our innovative suite of hotel solutions are specifically designed to meet the needs of guests in the mobile technology era, and thereby increase the competitiveness of the hotel market. Feel free to contact us for more details.