The Economic Life of Economy Hotels
By Hans Detlefsen, Managing Director of HVS Global Hospitality Services
This article evaluates the economic life of economy hotels given normal wear-and-tear. The life of these hotels is plotted on a frequency distribution, and an average economic life is found. Economic life is an important component in determining development feasibility of hotels. Economic life is defined in the Appraisal Institute's Dictionary of Real Estate Appraisal as "the period over which improvements to real property contribute to property value." A deteriorating property can lead to a depreciation of the value of the asset, and owners of an aging property may determine that the expenses associated with improving the property cannot be justified. When improvements cease to contribute to value, the property's economic life comes to an end.