What do hotels do with unused guest rooms?

Answer by Mike Holovacs:

Unused rooms sit ready and waiting for occupants. If a hotel was built with a certain amount of rooms and it has never used all of them, that means the hotel has never sold out, which is a very depressing thought. Even the worst hotels in certain markets sell out every so often for things like large local events, so the premise of the question indicates a lack of familiarity with hotels.

Also, there is an formula one can run to determine the optimum amount of rooms for a market. If you are looking to build a property in a given place or buy an available one, this formula would be of tremendous help in learning how much of that market you should expect to capture and the overall health of the market. Maybe the hotel is available because the market is overbuilt and you should stay away.

The formula:

R  =  T x P x L
           S x N

T = number of tourists
P = percentage staying in hotels
N = total # of guest nights/# of guests
R = room demand per nights/#
O = hotel occupancy used for estimating; divide number of rooms needed at 100% occupancy by estimated occupancy
S = number of days per year in business
L = average length of stay

Host communities should provide adequate levels of accommodations, yet should avoid over-supply situations where the number of rooms is disproportionately greater than demand. This formula provides a method for estimating an appropriate number of hotel rooms.

The numerator of this formula is the number of tourists * the percentage of the tourists that stay in hotels * average length of stay.

The denominator is the number of days per year in business * average number of persons per room.

The average number of persons per room is indicated here as total number of guest nights divided by number of guests.

To consider an example, imagine we have the following figures for input.

T  =  1,560,000 visitors (total per your local CVB or DMO)

P  =  98% (people will come to your destination and stay with family & friends.)

L  =  9 days (again, from your CVB or DMO, learned from surveys and area hotel reporting tools like Smith Travel Research)

N  =  1.69 (See above. Guest nights divided by guests.)

O = 70 % (Insert your desired occupancy percentage. Varies somewhat, but generally 65-70%. More than that, and costs go up faster than benefits of the high occupancy.)

S  =  365 days (Adjust if seasonal. Ski resorts are not open 365 days per year.)

For results of:

R  = 1,560,000 x .98 x 9
365 x 1.69
R  =  22,306 (rooms needed at 100% occupancy); at 70 % occupancy need
R  =  22,306/.70 = 31,866 rooms

The market in this example needs 31,866 rooms for it to have enough rooms for all area properties to be 70% booked.

Hope this helps.

What do hotels do with unused guest rooms?

Xochielt Sanchez


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