How to value a hotel for sale: RevPAR, NOI, cap rate and a worked example

A hotel is priced on the income it can produce after everything it costs to run, not on its square metres. Brokers show you three headline numbers and a price per room. This guide shows how to turn them into the one number that matters, net operating income, and how to test it before you pay.

The three numbers every seller quotes

• Occupancy: the share of available room nights that were sold. A hotel with 40 rooms has 14,600 room nights a year; 68 percent occupancy means about 9,900 nights sold.
• ADR, average daily rate: room revenue divided by rooms sold. It depends on the mix of channels and seasons, so ask for it by month.
• RevPAR, revenue per available room: occupancy multiplied by ADR, or room revenue divided by rooms available. It is the standard yardstick because it penalises both empty rooms and heavy discounting.

RevPAR compares hotels of a similar type, but it says nothing about costs. Two hotels with the same RevPAR can earn very different profits.

For scale, reports based on STR and CoStar data show European RevPAR up about 3 percent to around 101 euros in the first half of 2026, with room rates up about 2.2 percent and occupancy up half a point. Forecasts for the full year are more modest: about 1.2 percent growth in 2026 and a flat to slightly negative 2027, so growth has to come from rate rather than occupancy.

From revenue to net operating income

Hotels report in a standard format, the Uniform System of Accounts for the Lodging Industry (USALI), which separates departments from overheads. The path from revenue to income looks like this.

• Total revenue: rooms, plus food and beverage, spa, parking and other income.
• Departmental costs: what it costs to produce each revenue line.
• Undistributed expenses: administration, sales and marketing, property operation and maintenance, utilities. Industry sources put these at roughly 18 to 25 percent of total revenue.
• Gross operating profit, GOP: the result before management fees, property tax, insurance and the reserve. Industry sources quote typical GOP margins of 40 to 50 percent for limited-service hotels, 30 to 40 percent for upscale and 20 to 35 percent for full-service hotels. These are guides, not benchmarks for your hotel.
• Below GOP: the operator's fees, property tax and insurance (and ground rent, if any), and the reserve for replacing furniture, fixtures and equipment. Under the USALI convention this reserve is 3 to 5 percent of revenue, and seaside properties with heavier wear sit at the top.
• Net operating income, NOI: what remains. Industry sources describe 15 to 25 percent of revenue as a typical range.

The management fee deserves its own line even if you plan to run the hotel yourself, because a future buyer will price in a manager. Industry surveys describe a base fee of 2 to 4 percent of total revenue (3 percent most common) and an incentive fee averaging about 6.6 percent of GOP in the latest survey, within a range of roughly 2.5 to 10 percent. More in hotel management agreements, leases and franchise explained.

Cap rate: the price of the income, and what it hides

The capitalisation rate is NOI divided by price. A 7 percent cap rate means a price of about 14.3 times NOI. A lower rate means the market pays more for each euro of income, because the income is seen as safer or likely to grow.

In the first half of 2026 hotel yields in Europe were broadly stable. Cushman & Wakefield puts the European prime hotel yield at 4.75 percent, against roughly 4.9 percent for prime offices and about 5.2 percent for prime logistics reported by broker research in the same year. Prime means the best assets in the best locations with strong operators. A small hotel in a seasonal market trades at a wider yield, but we found no reliable published figure for that segment and do not quote one. Treat any cap rate quoted for your target as something to test against sales of similar hotels, not as a fact.

Two cautions. A cap rate calculated on the trailing NOI of a hotel that has just had a good year looks lower than it should. And renewed inflation and higher financing costs, which the 2026 reviews flag, can stop yields from compressing further.

What the 2026 transaction data says

• HVS counted 9.4 billion euros of European hotel transactions in the first half of 2026 across 183 deals: 10 percent below the first half of 2025 and 11 percent above the ten-year first-half average. The number of hotels sold fell 19 percent and rooms 23 percent.
• The average price per room rose 18 percent to about 268,000 euros. HVS says this reflects better-quality assets selling, not a general rise in values. Cushman & Wakefield, on its own dataset, gives about 228,000 euros per room, up 9 percent.
• Price per room is a cross-check, not a valuation. A resort with 40 rooms and a city-centre hotel with 40 rooms can differ in price many times over.

A worked example (our own arithmetic, not market data)

Take a 40-room hotel with an average daily rate of 140 euros and 68 percent occupancy.

• RevPAR is 140 multiplied by 0.68, about 95 euros. Room revenue is 40 rooms times 365 nights times 95.2 euros, about 1.39 million euros.
• We assume other revenue (food and beverage, extras) adds 20 percent of room revenue, so total revenue is about 1.67 million euros.
• We assume a GOP margin of 32 percent, so GOP is about 534,000 euros.
• The operator's base fee at 3 percent of revenue is about 50,000 euros; the reserve for replacing furniture and equipment at 4 percent is about 67,000 euros; property tax and insurance at 3 percent are about 50,000 euros.
• NOI is about 367,000 euros, which is 22 percent of revenue.
• At cap rates of 6, 7 and 8 percent the implied values are about 6.1, 5.2 and 4.6 million euros, or roughly 153,000, 131,000 and 115,000 euros per room.

The same hotel and the same NOI, with a spread of about 1.5 million euros between the cheapest and the dearest price. That is the weight of the cap rate you accept.

Why NOI moves faster than revenue

Many hotel costs do not fall when occupancy falls: staffing minimums, utilities, insurance, property tax and basic maintenance. Suppose, as our assumption, that half of operating costs are fixed. If occupancy drops five points to 63 percent, revenue falls by about 7 percent to 1.55 million euros, GOP falls to about 453,000 euros (a 29 percent margin) and NOI falls to about 295,000 euros, a drop of about 20 percent. At a 7 percent cap rate that is a value of about 4.2 million euros against 5.2 million. This is operating leverage, and it is the main reason a hotel is more volatile than a let apartment.

Checks before you trust the numbers

• Ask for three full years of accounts in the USALI format, or reconcilable to it, with monthly revenue, rooms sold and ADR, and compare them with bank statements and tax filings.
• Look for the owner's hidden costs and benefits: family labour not on the payroll, personal expenses, cash sales, fees the operator waived.
• Read the capex position. Hotels need renovation cycles; a deferred refit is a price reduction you have not yet been given. A brand may require a product improvement plan on takeover.
• Separate the real estate from the business: who owns the land and the building, the licences, the permit for hotel use, and whether the hotel is sold as a company or as assets.
• Test seasonality. In a six-month season a single bad month matters a great deal.
• Check the channel mix and the commissions paid to booking platforms, and the local rules on short stays and licences.
• Run the downside: lower occupancy by five to ten points and higher costs, and see whether the debt would still be covered. Banks often look for debt service cover of about 1.3 to 1.4 times, and market briefings put loans on quality European hotels at roughly 55 to 65 percent of value in the first quarter of 2026, lower in Southern European city markets; these are indicative and must be confirmed with a local lender. See hotel acquisition financing for foreign buyers.

Reading a broker's teaser

A sales teaser is written to sell. Before you rely on its numbers, separate what happened from what is promised.

• Actual or projected: does the NOI come from the last twelve months, or from a budget or a stabilised year that has not happened yet? Ask for both columns.
• Before or after: is the NOI quoted before or after the operator's fee and the furniture and equipment reserve? A teaser that skips both flatters the yield by several points.
• What is included: furniture and equipment, the brand or franchise agreement, supplier contracts, the licences, staff liabilities and any ground rent or lease. A price that excludes something you need is not comparable.
• What changes on takeover: a new owner may lose a favourable tax position, a family manager or an existing management contract, and the buyer's own costs begin on day one.

Who this is for

This guide is for anyone about to compare two hotels, or a hotel and an apartment, who wants the figures on one basis. It is not a substitute for a professional valuation: for real money, commission an independent valuer or a hotel adviser. See also hotel real estate for private investors and hotel vs apartment vs commercial property.

FAQ

What is a good RevPAR? One that beats comparable hotels in the same market; absolute levels differ widely between cities. Is price per room a reliable measure? Only as a cross-check. Why do brokers quote gross figures? Because they are higher, so ask for NOI. Does an operator's guarantee change the value? Only to the extent the guarantor is solid and the term is long; a guarantee is a promise by a company, not an attribute of the building.

How we help

We help check, compare and negotiate: we rebuild the seller's numbers on a standard basis, stress them and compare the result with similar sales. We do not promise returns.

This article is informational only and is not legal, tax or investment advice. Figures are indicative, come from market and industry sources and change over time; the worked example is our own arithmetic on stated assumptions.