The meaning of REVPAR| What it means and how to calculate it

The meaning of REVPAR|What it means and how to calculate it

What is RevPar and why is it important for hotel property managers? Those who are learning about where to invest their money in Singapore for beginners will have came across the notion of REVPAR when they do their research on Hospitality related Reits and Business Trust. One good example will be Capitaland Ascott Trust

What is RevPar

RevPar stands for Revenue Per Available Room. Hotel and Hospitality related properties differ from other rental properties in both the type of rental as well as the length of rental. A normal property would have been leased to a major tenant for an average period of 2-3 years. However, in the hospitality space, the entire property is split into rooms or keys and leased to tenants for short periods of time. This can range from 1-2 days for hotels and 1-2 weeks for other type of service residences. Due to the short period of stay, property managers need to look at RevPAR.

RevPAR, short for Revenue Per Available Room, calculates the average income generated per room, factoring in both occupancy rates and room rates. This metric offers a clear snapshot of a hotel’s performance, indicating how effectively it monetizes its available inventory.

Understanding RevPar: Meaning and Significance

Hotel Name Occupancy Rate (%) Average Daily Room Rate ($) RevPAR ($)
Hotel A 80 150 120
Hotel B 85 170 144.5
Hotel C 75 160 120
Hotel D 90 180 162
Hotel E 70 140 98

RevPAR is calculated by multiplying the average daily room rate (ADR) by the hotel’s occupancy rate. What this means is that it is not just important to be able to charge a high unit price for each room that has been sold. Rather it is also important to sell all the rooms that the hotel has in its inventory. While Hotel C in the table is able to charge a higher price than Hotel A, the RevPar is still at 120 due in part to the lower occupancy. Hence, a higher RevPAR suggests efficient management and pricing strategies, while a decline may prompt adjustments in marketing, pricing, or operational tactics to enhance profitability.

Given the above, we hope you have a better grasp of what RevPAR is and why it is important to property managers.

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