What is an Average Daily Rate in Commercial Real Estate?
Average Daily Rate, or ADR, is one of the most important metrics that hotels use to determine the income and profitability of a property. ADR is determined by dividing the entire rental income for a day by the number of occupied rooms on a property. For example, if a hotel makes $50,000 in one day, as a result of 100 rooms being rented, their ADR for that day is $500.
The Shortcomings of Average Daily Rate
While looking at a property's ADR is a good place to start, it doesn't tell the whole story. Most importantly, average daily rate does not look at occupancy. For instance, the hotel in the example above might have an ADR of $500, but if it's only at 50% occupancy, it still might not be profitable.
Revenue Per Available Room (RevPAR) Can Be a Better Metric for Hospitality Properties
To solve the shortcomings of ADR, many hotel operators investors use another metric, Revenue Per Available Room, or RevPAR, to better calculate a hotel's income and profitability. RevPAR takes a hotel property's ADR and multiplies it by the occupancy rate. In the example we just mentioned, the hotel would have a RevPAR of $250/day ($500 * 50%).