By Tracy Heebner - HVS Canada
October 2007
Adding a waterpark to a hotel can be a lucrative investment, but the
costs involved are great, and consequently there are risks involved in
adding this amenity that must be carefully considered. This article first
defines what constitutes a waterpark in the Canadian market and then identifies
the costs, risks, and potential benefits of adding this feature as well
as the market conditions necessary for the addition to be feasible.
The Canadian Hotel Waterpark
What actually constitutes a hotel waterpark is different in Canada than
it is in the United States. In the US, a waterpark is classified as a facility
that is over 10,000 square feet with a pool, a slide, and water toys. A
different scale is in operation in Canada, where a waterpark facility is
typically smaller than 5,000 square feet; here it is defined as an indoor
pool that is enhanced with a slide as well as toys.1
Potential Benefits
Adding a waterpark can make a hotel more profitable. Being a year-round
attraction, a waterpark can diminish the impact of seasonal demand, and,
being indoors, it can actually draw leisure travellers to the property
during bad weather. A waterpark can thus increase a hotel�s occupancy,
and, given favourable market conditions, it can also enable a hotel to
command a higher average room rate.
According to a study conducted by U.S. Realty Consultants Inc., hotels
with waterparks have a higher occupancy spread of 5% to 30% over hotels
that lack such facilities. A waterpark attraction also allows hotels to
charge higher rates. According to the same study, hotels with waterparks
attained rates that were $20 to $150 higher.2 These statistics
reflect the performance of US hotels, which have substantially larger waterparks
than hotels in Canada and include higher class hotels, not just economy;
it is unlikely that the rate differential between Canadian economy hotels
with and without waterparks would be nearly so great. These statistics
nonetheless show a general trend that is likely in effect in the Canadian
market, if only on a smaller scale.
Costs
The potential to increase occupancy and rate can be enticing, but the
resulting increases in revenues must be sufficient to justify the costs
incurred in constructing the waterpark. So how much does it cost to construct
a waterpark?
In Canada, most hotels with waterparks are economy hotels with less
than 100 guestrooms, and the waterpark is usually less than 5,000
square feet.3 Hotel Waterpark Resort Research &
Consulting Collaboration surveyed Canadian economy hotels with waterparks
and found that the average waterpark hotel in Canada has 69 guestrooms
and ±2,918 square feet of waterpark space.4
For an economy hotel, the standard cost for a waterpark is $167 per
square foot.5 Given the average squarefootage for a waterpark
at a Canadian economy hotel (±2,918 square feet), the cost of the
average waterpark is $487,306, or roundly $500,000.
Feasibility
A waterpark can help a hotel command a higher average room rate, but
the crux of the matter is that the hotel must attain a higher average room
rate to cover the costs incurred in constructing the facility. The rule
of thumb is that the cost per room to build a hotel divided by 1,000 equals
the average rate that the hotel needs to achieve to make the hotel feasible
(at a 60 to 70 percent occupancy). The cost of a waterpark is an additional
financial burden that the average rate must cover.
For example, if it cost $6.9-million to build a 69-room hotel, or $100,000
per room, the property would need to attain an average room rate of $100
and run between 60% and 70% occupancy to be feasible. The average waterpark
would add $7,246 per room to the cost to build the hotel ($500,000/69 =
$7,246). Dividing this amount by 1,000 means that an additional $7.25 must
be added to the $100.00 average rate for the hotel development to be feasible.
To justify the cost of the waterpark, the hotel in question would need
to attain an average room rate of at least $107.25.
Risks and Market Conditions
On average, hotels with waterparks do achieve higher rates than hotels
that lack such facilities, but if the market is unable to support the higher
rate required, the waterpark becomes an economic burden on the hotel operation.
In other words, there is a degree of risk involved in adding a waterpark
to a hotel. According to David Sangree, MAI, a hotel with �an indoor waterpark
is more sensitive to fluctuations in the leisure market, the economy, and
the demographic composition of a market area.�6
Several market factors must be considered carefully when contemplating
the addition of a waterpark. For starters, the population of the market
must be sufficient for a waterpark to be viable. Generally, a waterpark
will attract people within an 80-kilometre radius. Within this radius,
the best type of market is one with a strong leisure component and a bluecollar
economy with young families that have children.
Highway locations are excellent choices, as vacationing families from
outside the market area will favour a hotel with a waterpark over other
properties of the same calibre,7 even if they have to
pay a higher rate. Imagine for a moment driving for long hours with young
children in the car and it is easy to see why a waterpark can be a competitive
advantage for a hotel in a suitable highway location.
A waterpark is particularly advantageous for hotels in cold or intemperate
climates, as the waterpark can draw demand to the property in the off season.
Being the hotel with the first waterpark in the market is also
a way to differentiate the property from competitors. It is important to
realize that this competitive advantage is temporal, as competitors will
try to compete by copying the facility and being bigger and thus more attractive
to the target market.8 For this reason, it is important
that the waterpark be built as big as is feasible, to help the hotel prolong
this first-mover advantage.
Summation
One must weigh the potential benefits against the costs and the risks
when deciding whether or not to add a waterpark to one�s hotel. Most hotels
with waterparks do achieve a higher occupancy and a higher average room
rate, but the construction costs are substantial, and the market must be
able to support the rate increases necessary to offset the costs. If the
costs are deemed reasonable and the market and the location are appropriate,
build the waterpark.
SOURCE:
1 Jeff Coy and Bill Haralson. Hotel Water Park Report
2005, pg. 21. Taken on Oct. 5, 2007, from www.hotelonline.com.
2 Rajesh Shah. Indoor Waterpark Hotels and Resorts Show
Impresssive Growth, 2007. Taken on Sept. 29, 2007, from www.hotelonline.com.
3 Jeff Coy and Bill Haralson. Hotel Water Park Report,
2005, pg. 22. Taken on Oct. 5, 2007, from www.hotelonline.com.
4 Jeff Coy and Bill Haralson. What is it going to Cost
to Build a Hotel with an Indoor Waterpark, 2003, pg. 5. Taken on Sept.
29, 2007, from www.hotelonline.com.
5 Jeff Coy and Bill Haralson. What are the Risk Factors
of a Hotel Waterpark Investment, pg. 5. Taken on Sept. 29, 2007, from www.condohotelcenter.com.
6 David Sangree. Appraisal and Market Analysis of Indoor
Waterpark Resorts, 2006. Taken on Sept. 29, 2007, from www.hotelonline.com.
7 Daniel Heuertz. Summary of Waterpark Research, 2004.
Taken on Oct. 5, 2007, from www.sugargrove. il.us/Dept_CD/SDD5.pdf.
8 Daniel Heuertz. Summary of Waterpark Research, 2004.
Taken on Oct. 5, 2007, from www.sugargrove. il.us/Dept_CD/SDD5.pdf.
CANADIAN LODGING OUTLOOK
HVS INTERNATIONAL - CANADA
August 2007
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CANADIAN LODGING OUTLOOK
HVS INTERNATIONAL - CANADA
August 2007 YTD
© Smith Travel Research, 2005.
Reproduction or quotation in whole or in part without permission is forbidden.
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