Full Definition
Hotel Occupancy Rate = Rooms Occupied ÷ Rooms Available × 100. Measured daily, monthly, and annually. Annual average occupancy is the primary underwriting assumption for hotel NOI — it directly determines gross revenue when combined with ADR. Orlando theme park corridor hotels typically achieve 78–88% annual occupancy; secondary markets average 65–75%.
Example
A 60-room motel with 45 rooms occupied on a given night has 75% occupancy. Over a full year with 365 nights, average 70% occupancy means 15,330 room-nights sold. At $90 ADR, gross room revenue = $1,379,700.
Why It Matters
Always underwrite at conservative occupancy (70%, not OM projections of 80%+). The difference between 70% and 80% occupancy on a 40-room hotel at $100 ADR is $146,000/year in gross revenue — a gap that determines whether DSCR is positive or negative.
Related Terms
RevPAR (Revenue Per Available Room)
Hotel performance metric: total room revenue divided by total available room-nights. Combines occupancy and rate into a single metric.
ADR (Average Daily Rate)
The average revenue earned per occupied room per night. Calculated as total room revenue divided by occupied rooms.
DSCR (Debt Service Coverage Ratio)
Ratio of NOI to annual debt service. Lenders require 1.20x-1.30x+ typical for commercial loans.