What is my hospitality property worth?

Retirement, inheritance, illness or simply a change of direction – anyone planning to hand over their business faces the same question first: what is the property actually worth? Set the figure too high and you lose time and interested parties. Set it too low and you lose money. This overview explains what the value consists of, which methods are applied, and where the typical mistakes lie.

Value is made up of four components

Unlike a residential property, the value of a hospitality property comprises several elements that need to be assessed separately:

• Land value – derived from the municipal standard land value and the actual plot size.
• Building value – depending on year of construction, structural condition, fit-out and any deferred maintenance.
• Equipment value – kitchen technology, furnishings, refrigeration and other fittings, assessed at current value rather than purchase price.
• Business value – the value of the operating business itself, including turnover, profit, regular clientele and reputation.

The last point in particular sets hospitality apart from other property types. A property with a functioning business is worth considerably more than the same rooms standing empty – provided the figures support it.

Which methods are applied

Four approaches are used in practice, usually in combination:

• Income capitalisation approach – derives value from sustainably achievable earnings. The decisive method for properties viewed as an investment.
• Comparative approach – based on prices actually achieved for comparable properties. Difficult in hospitality, because genuine comparables are rare and purchase prices are seldom public.
• Depreciated replacement cost approach – establishes what rebuilding land and structure would cost. Useful as a floor and as a plausibility check.
• Multiplier approach – applies industry-standard factors to turnover or earnings. Quick, but only as reliable as the underlying figures.

None of these methods alone produces the right value. A valuation only becomes robust when several approaches arrive at a similar result – and when any deviation can be explained.

The softer factors

Beyond the hard figures, circumstances influence the price that resist any formula but carry considerable weight in negotiation:

• The reputation of the house and how long it has stood in that location
• Loyal regular custom and established booking channels
• An experienced team that can be taken on – a tangible advantage in a tight labour market
• Established supplier relationships and terms
• Alternative permitted uses – if a hotel could also be operated as senior housing or converted to residential use, this raises the value considerably
• Municipal development plans that will make the location more attractive over coming years

The most common mistake: your own perspective

What matters is not the figure you have in mind, but what a buyer is prepared to pay. This sounds obvious and is nevertheless overlooked regularly.

So take the opposite view deliberately: where has maintenance been deferred? What investment would a buyer have to shoulder in the first year? Where is the kitchen technically at the end of its life? Naming these points yourself costs you nothing – it leaves you prepared in negotiation rather than caught out by objections.

The second frequent mistake concerns the figures. Management accounts for the past two to three years are the basis of any serious valuation – and the precondition for a buyer obtaining finance at all. Without solid figures, any asking price remains an assertion.

Going deeper by property type

Hotels and restaurants are valued using different metrics. We have a dedicated article for each:

• Valuing a hotel – income capitalisation, occupancy, average daily rate, RevPAR and the metrics investors examine.
• Valuing a restaurant – land, building, equipment and business value in detail, with a worked example and customary multipliers.
• Rent times eight – how to derive an appropriate rent from turnover where leasing rather than sale is the goal.

Frequently asked questions

What does a valuation cost?

Our initial consultation including a preliminary assessment is free of charge. A formal valuation report by a sworn expert is a separate matter and commissioned separately – for establishing a sale price it is not required in most cases.

Which documents are needed?

Management accounts for the past two to three years, land register extract, floor plans, inventory list, lease agreements and a summary of investments made in recent years.

How long does a valuation take?

An initial assessment is usually possible within a few days of the conversation and a review of the figures. A detailed valuation including a site visit takes correspondingly longer.

Does a closed business reduce the value?

As a rule, yes. Without an operating business the business value falls away, and buyers additionally price in the start-up phase. Anyone intending to sell should ideally do so while the business is still running.

Have your property assessed

We have valued hospitality properties exclusively for years and know the prices actually paid in southern Germany – not merely the ones asked. The initial consultation is free of charge and confidential, even if you are only beginning to consider your options.