Valuing Hotels in the Philippines: Cap Rates, Asset Value, and Future Growth
- Brixon Realty
- Dec 14
- 4 min read
Income Value (Cap Rate Method)
The income-based valuation uses a hotel’s net operating income (NOI) and a market capitalization rate. Investors evaluate the expected cap rate for the asset and apply the standard formula:
Valuation Formula:
Hotel Value = NOI ÷ Cap Rate
For example, if a hotel generates ₱10 million in NOI per year and the chosen cap rate is 5%, the baseline value is ₱10M ÷ 0.05 = ₱200M.
Market cap rates in the Philippines typically vary by management structure:
Owner-operated hotels: 6–8%
Leased / passive-income hotel investments: 4–6%(reflecting more stable, lower-risk cash flow)
A low cap rate implies strong confidence in the income stream—yielding a higher valuation for a given NOI. A high cap rate indicates operational risk or volatile revenue, resulting in a lower valuation.
In practice, the cap-rate approach establishes an upper bound on the hotel’s value based on its current earnings. If an asking price implies an unusually low cap rate, the hotel may be overpriced.If the resulting cap rate is very high, that may reflect operational risk or inconsistent performance.
Asset Value (Land and Building)
The asset-based valuation provides a price floor, grounded in the inherent value of the hotel’s land and structure. Regardless of current business performance, the physical asset holds substantial worth.
Land Value
Across the Philippines, land prices show strong upward pressure due to ongoing infrastructure expansion and commercial development. Factors that typically increase land value include:
Airport expansions and improved connectivity
New expressways and regional transport links
Economic zones and industrial parks
Growth of tourism and leisure districts
Increasing demand for residential and commercial development
As infrastructure and investment expand, property values tend to rise, pushing land prices upward in both urban and emerging provincial areas.
Because of this, land value supports the hotel’s minimum valuation—the property should not be sold below the combined worth of the land and the building.
Building Value
Although buildings depreciate over time, construction and material costs in the Philippines continue to climb. Therefore, valuers often consider the replacement cost of the structure, not just depreciation.
Important components include:
Age of the building
Physical condition
Recent renovations or upgrades
Compliance with hotel brand standards (lobby, rooms, elevators, F&B areas)
A well-maintained, updated hotel can command a price close to its replacement cost, especially in markets experiencing rising construction prices. In practice, land + building value form the valuation floor, regardless of short-term profitability.
Future Value (Growth Premium)
The Philippines’ long-term market outlook can justify paying a premium over income-only or asset-only valuations. This growth premium reflects expected increases in occupancy, ADR, and overall revenue driven by expanding economic activity.
Key countrywide growth drivers include:
1. Tourism & Air Travel Expansion
Philippine airports continue to expand capacity, increasing international and domestic connectivity. New routes and airline partnerships translate into higher guest arrivals. As passenger volumes grow, hotels generally achieve stronger occupancy and ADR.
2. Industrial, Logistics, and BPO Development
The Philippines remains a major hub for BPO operations, logistics centers, manufacturing, and economic zones. These sectors generate steady business-travel demand, long-stay bookings, and conference-related occupancy—benefiting both city and provincial hotels.
3. Casino, Resort, and Leisure Growth
Integrated resorts, casinos, and new leisure developments across the country attract tourists year-round. These large-scale projects increase the overall visitor base and lift demand not only for resort hotels but also nearby accommodation providers.
4. Meetings & MICE Demand
The Philippines is increasingly hosting national and regional conferences, exhibitions, and business events. Investment in convention centers and corporate facilities strengthens year-round hotel demand and raises revenue potential for mid- to high-end hotels.
Combined, these trends indicate that the Philippine hotel market offers growth beyond current NOI. Thus, investors may be willing to accept a slightly lower cap rate today in anticipation of higher future income.
Final Valuation Formula
Bringing all three components together, a fair market price for a hotel in the Philippines can be summarized as:
Price ≈ (NOI ÷ Cap Rate) + (Land + Building Value) + Future Growth Premium
The NOI ÷ Cap Rate figure provides an income-based value, essentially the upper bound based on current earnings.
The land/building value represents the floor—the minimum value of the physical asset.
The future growth premium adjusts the valuation upward to reflect the Philippines’ tourism expansion, infrastructure growth, and rising business/travel demand.
Summary
Cap rates prevent investors from overpaying based on today’s income. Land and building values prevent investors from undervaluing the physical asset. And the Philippines’ strong growth trajectory means that paying a premium over the NOI-based price can still be rational, given the country’s long-term demand outlook.
By combining income value, asset value, and future value, both buyers and sellers can reach a balanced and defensible hotel price—whether in Metro Manila, Cebu, Pampanga, or any other developing hotel market in the Philippines. To support this transparency, sellers are encouraged to secure a formal appraisal before listing, and buyers likewise benefit from obtaining an independent valuation to ensure a fair and well-informed transaction.
