Please ensure Javascript is enabled for purposes of website accessibility

What Is RevPAR?

By Matthew DiLallo – Updated Jun 10, 2022 at 4:37PM

A key performance metric for the hospitality industry is a property's revenue per available room, or RevPAR. It helps gauge the overall performance of a hospitality property like a hotel by measuring how much revenue each room produces per night. Because of that, it's an important metric for commercial real estate investors who own hospitality properties like hotels as well as real estate investment trusts (REITs) focused on hospitality.

Rear view of tourist in the hotel room pulling the curtains to see the view
Source: Getty images

What is RevPAR?

The hotel industry uses RevPAR to evaluate how much revenue its rooms produce. It helps hotel operators and owners gauge a property's ability to maximize the revenue of each room by comparing the occupancy rate against the average daily room rate (ADR).

Hotel operators and owners analyze changes in RevPAR to measure performance. If it's on the rise, the hotel is doing a better job maximizing its per-room revenue. Meanwhile, declining RevPAR suggests a property's performance has started slipping.

How is RevPAR calculated?

There are two ways to calculate RevPAR:

  • Multiply a hotel's average daily room rate by its occupancy rate.
  • Divide a hospitality property's total room revenue by the number of total rooms available.

For example, a hotel has an average daily rate of $100 and an occupancy rate of 50%. Thus, its RevPAR would be $50 (100 X 0.5). Conversely, a 50-room hotel generates an average of $10,000 in total room revenue per night. This hotel's RevPAR would be $200 (10,000 / 50).

How RevPAR helps hotels evaluate their profitability

RevPAR alone isn't a good gauge of a hospitality property's profitability. That's because it doesn't factor in expenses such as costs per occupied room (CPOR). It also doesn't include total hotel revenue, which factors in other sources like room service, parking and resort fees, or conference room rentals.

However, it's still a good metric for evaluating profitability trends. For example, hotel REITs use RevPAR as one of their key operating statistics. They provide this metric so that investors see how it's trending compared to prior periods.

For example, a hotel REIT reported that its RevPAR in the most recent quarter was $95.05. If this number was below what the REIT generated in the same quarter in the previous year, profitability was probably under pressure unless CPOR declined by a larger percentage or the REIT generated more revenue elsewhere. On the other hand, if RevPAR increased, it hints that the REIT's profitability improved, assuming that operational costs didn't spike and other revenue sources didn't dry up.

How RevPAR helps hotels make decisions

While RevPAR might not be a perfect profit indicator, it does help hotels make changes to boost their income. For example, a hotel manager can use RevPAR to assess whether they've priced their rooms at the best rate. A hotel that currently has an ADR of $100 and a 90% occupancy rate would generate $90 in RevPAR.

If higher occupancy was the hotel's goal, it might consider reducing the ADR to $90, which would yield the same $90 in RevPAR if it achieved a 100% occupancy rate. However, total revenue would remain the same, while costs would likely rise since the hotel would need to pay to clean more rooms each night. Thus, profitability could suffer.

On the other hand, if maximizing revenue is the goal, the hotel manager should consider raising its average room rate. If the hotel boosted its ADR to $125, causing occupancy to decline to 75%, RevPAR would rise to $93.75. As a result, total revenue has increased. Further, the hotel's profitability could have also grown since costs would likely fall in that scenario since the hotel wouldn't need to have as many rooms cleaned each night.

RevPAR helps evaluate hotel performance

RevPAR is a key measurement of hotel performance. While the metric isn't a profit indicator, it can inform trends and guide changes that could boost a property's income. Because of that, it's an important metric for hotel operators and owners to monitor.

The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 06/27/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.