Hotel renovation, PIP and repositioning: what it costs

Renovation is where many hotel purchases are won or lost. A hotel that is bought cheaply because it is tired can become a good investment, but only if the capital plan is realistic, the work is phased around trading, and the extra income after the work is estimated honestly. This article explains the logic of a property improvement plan (PIP), what drives cost, and how an investor can test whether the money creates value. It is general information, not a construction or investment recommendation.

Two different kinds of capex

Hotel capital spending falls into two groups, and mixing them up distorts every valuation.

• Maintenance and replacement capex: the regular renewal of carpets, soft furnishings, bathrooms, kitchens, lifts, roofs and technical plant. It is funded from the FF&E reserve (furniture, fittings and equipment) that a management contract usually requires, often quoted in the range of 3-5% of revenue. See management agreements, leases and franchise explained.
• Value-add or repositioning capex: a one-off programme that changes what the hotel is, for example a higher star category, a new brand, a spa, a rooftop, new meeting space or more rooms created from underused areas.

A buyer who sees a 30-year-old hotel and only models the reserve will underestimate the bill. A buyer who models a full repositioning but leaves the reserve at zero afterwards will overstate the income. Both belong in the model: see how to value a hotel.

What a PIP is and who controls it

A PIP is a list of works that a hotel brand requires before it admits a building to its system, or at regular intervals during the contract. It usually covers guest rooms and bathrooms, public areas, restaurant and bar, signage, technology, fire and life-safety, accessibility and sometimes the facade and energy systems. A change of ownership or a conversion to a new flag normally triggers a new PIP.

Three points matter for an owner.

• The PIP is negotiated, not given. Scope, deadlines and the standard of specification are often open to discussion before signing, and much less so afterwards.
• Failing to complete the PIP on time can allow the brand to terminate or to charge. Check the cure periods in the franchise or management contract.
• The PIP is not the whole budget. Structural repairs, licences, mechanical and electrical upgrades and the owner's own improvements are usually extra.

If you are comparing brands, ask for the PIP before you agree the price, not after. Our article on how to choose an operator and read the contract lists the contract clauses to check.

Cost per key: what can and cannot be said

Hotel renovation costs are usually expressed per key, meaning per room. Published ranges mostly come from the United States. One US industry commentary in 2025-2026 cites roughly USD 10,000-25,000 per key for limited-service change-of-ownership PIPs and USD 50,000-150,000 or more per key for full-service hotels. We could not find a comparable, reliable public benchmark for European markets, and costs differ widely between Lisbon, Budapest, a Greek island and a Thai resort. Treat any single number as an order of magnitude, not as a quote.

What reliably drives cost in any country:

• Condition of the building: ageing pipes, electrics, ventilation, roofs and lifts are expensive and invisible until opened up.
• Scope: a soft-goods refresh (paint, fabrics, lighting, furniture) is a different project from a full strip-out with new bathrooms and air conditioning.
• Category and positioning: a luxury specification costs several times a basic one.
• Local labour and materials, plus logistics on islands and in remote locations.
• Heritage or protected status, which can limit what you may change and increase cost.

The only reliable number is a contractor-priced estimate based on a survey of this particular building. A hypothetical illustration: a 40-room hotel where a surveyor estimates EUR 30,000 per key gives EUR 1.2 million, and a contingency of 15% adds EUR 180,000, so the planning figure is about EUR 1.4 million before fees, permits and the loss of income during works. The figures are round and invented to show the arithmetic only.

Phasing and downtime

Closing completely is the fastest and often the cheapest way to build, but it removes revenue for the whole period while debt service, insurance, property tax and a core team continue. Phasing keeps some income but slows the work and can hurt guest reviews.

• Full closure in low season: common for seasonal hotels, since the lost revenue is smaller. Make sure the contractor's programme fits the window, because a missed reopening date can cost a peak month.
• Floor-by-floor phasing: possible for city hotels, but noise and dust can reduce rates and reviews; some owners discount rooms heavily during works.
• Pre-opening costs: recruitment, training, marketing and ramp-up. A renovated hotel does not return to stabilised performance on the first day. Ramp-up of one or more seasons is a sensible planning assumption, and we have not tied it to a specific market.

Model the lost net income during the works as part of the project cost, not as an afterthought.

Permits and approvals

Before buying a hotel that needs works, confirm with local counsel and an architect what is allowed.

• Building and change-of-use permits: adding rooms, a spa or a rooftop usually needs a permit, and in some jurisdictions the process is slow or uncertain.
• Hotel licence and classification: a renovation can change the category, and some countries re-inspect.
• Fire safety, accessibility and energy-performance rules, which increasingly apply to renovated buildings. See hotel ESG, energy costs and green certification.
• Heritage, coastal and environmental restrictions.

Make the purchase contract conditional on the key permits where the market allows it. The difference between a building you can convert and one you only hope to convert is discussed in buying an operating hotel vs a building to convert.

Contingency and cost control

Older buildings produce surprises. A contingency of 10-20% of the construction budget is common practice for renovations, higher for heritage or poorly documented buildings; this is an indicative planning habit, not a rule. Other controls:

• A fixed-price or guaranteed-maximum-price contract where possible, with clear variation procedures.
• An independent project manager or cost consultant who reports to the owner, not to the contractor or the operator.
• Retention, performance guarantees and warranties for defects.
• Staged payments tied to completed work.

Does the money create value?

The test is simple in principle: does the net operating income after the works, capitalised at a sensible rate, exceed the purchase price plus total project cost plus the income lost? Be sceptical about three assumptions: that the new category will lift the average rate by the amount you hope, that occupancy will not fall as the rate rises, and that the market will still pay the same yield at exit. Check the competitive set, not the brochure. A renovation that only brings the hotel up to the standard of its neighbours protects value; it does not necessarily add to it.

FAQ

Is a PIP always required when I buy a branded hotel? Not always, but a change of ownership or a franchise or management transfer commonly triggers one. Read the contract and ask the brand for the draft scope before you sign.

Can I use the FF&E reserve to pay for a PIP? Usually the reserve is meant for ongoing renewal, and a large PIP exceeds it. Plan separate funding and check what the contract allows.

How much contingency should I include? Practice is often 10-20% of the construction cost, more for old or heritage buildings. A survey of the building should set the figure.

Is it better to close the hotel or renovate in phases? It depends on seasonality, debt service and guest impact. Seasonal hotels usually close in low season; city hotels sometimes phase. Model both.

Do green upgrades pay back? Energy-saving works reduce running costs, and the EU building rules are tightening, but payback depends on local energy prices and the building. See our article on hotel ESG.

How we help

We are a trilingual platform that finds hotel and hospitality properties and coordinates independent local lawyers, technical surveyors and tax advisers. We do not carry out construction or give investment advice. This text is informational and is not legal, tax or investment advice; rules and costs change, so verify current requirements with local professionals. See also the hotel investment guide for private investors.