Skip to main content

Study Reveals How Online Reviews Impact Hotel Real Estate Value

“Increasing a hotel’s Guest Experience Index™ by 10 points will lead to a 19% increase in the hotel’s real estate value.”
Determining the value of a hotel’s real estate is a complex challenge which involves evaluating various fundamental factors such as size and location. There are also a number of additional factors that are often more challenging to evaluate such as hotel quality. Investors and researchers struggle to fully capture the impact that hotel quality has on a hotel’s real estate value because of its difficulty to measure elusive components such as service and atmosphere.

New Approach

Traditionally, hotel star classes – one to five stars –  have been used as a general indicator of hotel quality. Even though this indicator is effective to a certain degree, the underlying system is flawed as it differs from country to country, and does not take into consideration the actual performance of the hotel and its staff.
To accommodate this flaw in the star classes system, Olery’s vast database of analysed online hotel reviews provides hotel insights into the quality of its services and staff from the guests perspective. This in turn enabled new research that can be used by both researchers and investors.

Results

M.Sc. Benno Houben from the University of Amsterdam evaluated 180 hotel real estate transactions in his 2015 study The Effect of Online Hotel Reviews on Hotel Real Estate Pricing, and found that investors of hotel real estate should take hotel quality into account when acquiring new properties, and that there are opportunities for hotels to increase their real estate value.
The results imply that hotel quality is very important to both investors who are acquiring new properties, and hotel owners who can increase their real estate value through this process.
Olery’s Guest Experience Index™ (GEI), a weighted score combining ratings and other review data, is a unique system that significantly influences hotel real estate value by 19% in price if a hotel can get a 10 point increase on the GEI 100 point scale. In other words, if a hotel manager is able to increase the GEI from 70 to 80, this would lead to an increase of 19% of the hotel’s real estate value.

Research Details

Stretching over eight tourist destination, 180 transactions from Houben’s study were statistically analyzed, along with location, hotel type and number of rooms,  to determine how online reviews influence the value of hotel real estate. With hedonic regression analysis, the influence of the independent variables on the dependent variable was calculated.
Because location is considered as highly important by real estate investors, it could be possible that the significant effect of GEI on hotel real estate pricing is caused by the hotel’s location alone, and not other factors like cleanliness and service. To make sure this is not the case, a second regression model was calculated with separate indicators for quality purposes.
The second model took into consideration online guest ratings for location, cleanliness, room, value for money, service, and condition. Because of the high correlation between cleanliness and all the other indicators, only cleanliness was used in the model simultaneously with location. The model would determine whether cleanliness – as a representation for the other indicators too – shows a significant impact on hotel real estate value, and would have an effect on hotel real estate pricing.
The results of this model indicate that the online guest ratings of both location and cleanliness are statistically significant, and the influence of online guest reviews on hotel real estate pricing is therefore not only dependent on location, but also on hotel quality.

Review Data Exporter

If you want to do your own analysis and want to have access to hotel data, check out our newest product, the MakCorps Hotel price comparison API.
If you are interested in reading more about this study or how we can help you, get in touch with us.


Comments

Popular posts from this blog

This Is Exactly How You Should Train Yourself To Be Smarter [Infographic]

Design inspired by the Cognitive Bias Codex
View the high resolution version of the infographic by clicking here. Out of all the interventions we can do to make smarter decisions in our life and career, mastering the most useful and universal mental models is arguably the most important. Over the last few months, I’ve written about how many of the most successful self-made billionaire entrepreneurs like Ray Dalio, Elon Musk, and Charlie Munger swear by mental models… “Developing the habit of mastering the multiple models which underlie reality is the best thing you can do. “ — Charlie Munger “Those who understand more of them and understand them well [principles / mental models] know how to interact with the world more effectively than those who know fewer of them or know them less well. “ — Ray Dalio “It is important to view knowledge as sort of a semantic tree — make sure you understand the fundamental principles, i.e. the trunk and big branches, before you get into the leav…

Warren Buffett: “Really Successful People Say No To Almost Everything”

When I tell people that Warren Buffett follows the 5-Hour Rule and spends 80% of his time reading and thinking, they have an immediate and predictable reaction: “Well, he can do that because he’s Warren Buffett, one of the richest people in the world. I could never do that.” While this response may help people feel better about themselves, it certainly won’t make them smarter. Because the reality is: Buffett has spent most of his time reading and thinking since he was in grade school. Having more money or managing a large company doesn’t magically give you free time. Having free time is never the default. People don’t just fall into huge blocks of free time unless they retire. Rather, free time is the result of strategy. It’s the result of looking at time differently. Curious about Buffett’s unique strategies, I’ve read several books about him, read most of his annual letters to stockholders, and watched nearly all of his interviews. And make no mistake about it… behind Buffett’s jovia…

If you want to be massively successful, do NOT set ambitious goals, according to studies

The conventional model to having great success in your career is setting and ardently pursuing big, hairy, audacious goals (BHAGs), even if you have no idea how you’re going to achieve them when you start. Want to build a billion dollar company? Set the goal and work backward from long-term goals to medium-term goals to short-term goals to today’s to-do list. Then take action, measure your progress along the way, and constantly course correct so you’re always on the most direct path (that you’re aware of) toward your ultimate goal. Want to cure cancer? Set the goal and work backward. Measure your progress. Want to find the love of your life or be happy? Set the goal. Rinse and repeat. This goals model is so obvious in our culture, it goes without saying. It’s central to our collective success recipe. Goals give motivation, meaning, and focus when we feel lazy or distracted — at least so we’re told. However, recent research from the field of artificial intelligence is putting a nail in t…