Hotel ramp-up and the RevPAR index
Hotel ramp-up and the RevPAR index
04 APRIL 2011 6:38 AM

How long does it take new hotels to reach a point of “stabilization” in their respective markets?

BOULDER, Colorado--There are several factors that are taken into consideration when underwriting a hotel development deal, but perhaps none is more critical than the estimation of hotel ramp-up. How long will it take the property to reach its stabilized level of operation?

The concept of a hotel ever being stabilized is a slippery one. After all, a 100-room hotel can have up to 100 different tenants, all of whom signed up for a minimum one-day lease.  Risk of demand variability is the hallmark of hotel investment, so the idea of hotel stabilization is more a function of underwriting necessity rather than reality.

Nevertheless, it is possible to understand how certain types of hotels perform relative to their competitive set after opening their doors for business. While a hotel's revenue per available room might never reach a nice, steady position, perhaps its RevPAR index can. Thus, the question becomes: How long does it take a new hotel to reach full penetration of its comp set?

Parsing the analysis
This type of analysis certainly can be parsed several ways, but to simplify things, STR Analytics chose two chain scales to study: midscale and upscale. In this analysis, we targeted 50 properties from each of those groups that opened between 2004 and 2007. We then looked at each property's performance relative to its selected comp set for the first 12 months of operation, aggregated the results and determined how long, on average, it took each scale type to achieve a 100% RevPAR index (if at all).

A snapshot summary of the data we used is shown in the following table. Note that when there were data reporting irregularities with either the subject property or its competitive set, that property was removed from the pool, so the total number of properties per group was less than the targeted number of 50.


We took into account a variety of brands and geographic locations when selecting the assets as to not have any one variable skewing the results. First off, the brand diversification for each of the two groups is as follows.

Source: STR Analytics

Source: STR Analytics

As shown, there is slightly more distribution parity among the midscale hotels, but both groups generally are well-represented by a diversity of chains. The extended-stay segment is well-represented within both groups as well.

In terms of location, the geographic distribution of the two groups is as follows:

Source: STR Analytics

Source: STR Analytics

The South Atlantic region accounted for the largest amount of hotel openings for each group. The Pacific region has a broad representation in the upscale segment, while the Mountain and West North Central regions played a larger part in the midscale sample. In terms of findings, the overall ramp-up of aggregated indices for the two groups are shown in the following table:

Source: STR Analytics

In both cases, neither of the aggregated samples reached a 100% RevPAR index in the first 12 months of operation, although both came close. The midscale properties reached their highest RevPAR index (99%) in month No. 6, while the upscale properties reached 98% by month No. 9. Both groups had strong rate penetration immediately, with both falling short of the market average starting in month No. 10. Both groups struggled with their occupancy indices, with the midscale properties peaking and then decelerating before peaking again, while the upscale hotels seemed to show more of a steady and consistent climb.

The market’s response
One might expect hotels to open and then ramp up steadily over a few months before attaining their slated position within a market, but we all know the dynamics of competition don't allow for such a simple assumption.

While new hotels certainly do cut a demand swath out of their markets, management of the existing hotels learn to adjust, employing (often) effective pricing strategies and promotions to retain as much of their market share as possible. This is likely why the above table shows a peak in RevPAR index for each group before those numbers begin to slide. The competition learns how to fight back.

Overall, from this analysis it would appear midscale properties ramp up more quickly than their upscale counterparts, with each property group unable to sustain its peak penetration before losing some ground on rate to its comp set. The upscale hotels demonstrated a slightly more consistent performance, although by month No. 12 each group had nearly identical results.

Looking at the same samples over a more extended term (say, three years) might show the samples reaching and sustaining full RevPAR penetration of their comp sets, and perhaps that would be the logical subject for a second part of this analysis. That being said, we would postulate that RevPAR index, while not as volatile as absolute RevPAR, could rarely be seen as stable.


  • Tim Brooks April 4, 2011 5:49 AM

    Best researched analysis I have seen from STR in quite a while. Nice work. Would like to see the exact same analysis a year from now with YOY ramp-up trend comparison to learn to what extent, if any, present economic conditions affect RevPAR ramp-up.

  • anonymous April 4, 2011 7:55 AM

    Interesting research about hotel stabilization! We recently completed a similar study using STR data and focusing on occupancy stabilization as opposed to REVPAR stabilization or REVPAR index. It's scheduled for publication in the Cornell Quarterly I'll plan to send you an advance copy,

    John W. O’Neill, MAI, CHE, Ph.D.
    Associate Professor
    School of Hospitality Management
    The Pennsylvania State University
    233 Mateer Building
    University Park, PA 16802-1307
    (814) 863-8984
    (814) 863-4257 (fax)

  • Daniel Tannenbaum April 4, 2011 6:16 PM

    Thank you for this interesting info. I would be interested if the same research could be done in Asia where the opening dates fluctuate greatly.What is the view of the team on a variable like the size of the opening compared to the size or maturity of the market?

  • Carter Wilson April 5, 2011 4:26 AM

    Hi, Daniel. Sounds like an interesting project. Please contact me at or 303.396.1644 to discuss further. Thanks!

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