The Impact of Renovation Capital Expenditure on Hotel Property Performance

Abstract

This study investigates the impact of renovation capital expenditure on multiple measures of hotel property performance. We conduct analyses in two time periods: for a 3-year period immediately following renovation (short-term impact), and 3 to 6 years following renovation (long-term impact). The study is based on proprietary project, operational and financial data obtained for 305 renovation capital expenditure projects of individual properties within a single budget hospitality chain. We find renovation capital expenditures offer significant short-term beneficial impact in terms of increased revenue, profitability gains, higher customer satisfaction, and decreased repair and maintenance expense. Altogether, these outcomes should be advantageous to hotel property performance. In the long-term, a significant decline is apparent in revenue and profitability. Surprisingly, customer satisfaction does not decline, and repair and maintenance expense does not increase, which are both favorable.