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Market Analysis <br />26 <br /> <br />Market Analysis - Hotel <br />Understanding the relationship between supply and demand is a critical component of any <br />appraisal, particularly with respect to hotels. Unlike other property types, hotels essentially lease <br />their rooms on a daily basis. While this characteristic allows for an immediate response to <br />changes in market conditions, it also requires a high level of management intensity. There is an <br />inverse relationship between occupancy and average daily rate (ADR), and raising or lowering <br />rates typically has an immediate impact on room-nights sold. Effective management entails <br />finding the proper balance that allows for the maximization of revenue. <br />In this section we first identify the Subject property’s competitive set (e.g., those hotels that tend to <br />compete for the same sources of demand). We then identify relevant demand sources, analyze <br />historical growth patterns and assess the potential for growth (or lack thereof) in demand by <br />segment. The result is a projection of future market performance. Lastly, we conclude with a <br />projection of occupancy and ADR for the Subject property, taking into consideration its <br />competitive strengths and weaknesses relative to the overall market. <br />Some hotels are more directly competitive than others based on their locations, facilities, <br />branding, etc. This disparity in the level of competitiveness can be handled in a number of ways. <br />Some appraisers assign a percentage to each property and include only a portion of their guest <br />rooms in the competitive set. This technique, while theoretically sound, is highly subjective and the <br />overall analysis can be extremely sensitive to the assumptions made. Alternatively, we have <br />chosen to address this issue through our projected penetration rates. For example, the <br />introduction of a new property that is only marginally competitive will have a limited impact on <br />the Subject property’s penetration level, whereas a directly competitive property will likely have a <br />substantial effect. Regardless of the method employed, properly assessing the relationship <br />between supply and demand and its impact on the Subject property and market occupancy <br />requires a level of professional judgment.