What is RevPar in Commercial Real Estate?
RevPar, or revenue per available room, is a measure of a hotel's financial performance. It is calculated by dividing a hotel's total room revenue by the amount of available rooms. Another easy way to calculate RevPar is to multiply a hotel property's ADR (average daily rate) by its occupancy rate.
How Revenue Per Available Room Works in Practice
Let's say that a hotel has 200 available rooms, and the hotel is 85% occupied. If the average cost of a room at the hotel is $250 (and, for the sake of the exercise, that all rooms are the same price), the RevPar is calculated like so:
($250/night * 85% occupancy rate) = $212.50
In order to calculate the RevPar for a longer period of time, such as a week or a quarter, one can simply multiply the RevPar by the amount of days in the specified period.
Using RevPar to Determine the Suitability of a Commercial Real Estate Investment
When investors are considering purchasing a hotel or resort property, they may attempt to compare the RevPar of the property in question to the estimated RevPar of similar hotel or resort properties in the area. If the RevPar of the property is significantly lower than its peers, it may have management or marketing issues. Alternatively, it may simply be priced too high for potential guests. Either way, it's essential for investors to understand a hospitality property's RevPar before purchasing it.