Transforming underutilised hotel spaces into revenue streams

Hotel analysts are always looking at how to maximise revenues from a hotel’s inventory. There is comprehensive analysis aimed at increasing room revenues and yields, F&B spend and conference income, but are hotels missing out on something more obvious (or less obvious, as the case may be)?

Australia’s leading private hotel owner, Dr Jerry Schwartz, certainly thinks many hotel owners are missing out on revenue sources because there are so many unused or underutilised spaces within a hotel that are “out of sight, out of mind”.

At a recent hotel industry conference, I discussed with him the idea that by better evaluating and creatively reimagining these areas, hotels can generate additional revenue streams, improve guest experiences, and diversify their offerings with a relatively low level of capital investment.

His crowning glory of a hotel asset purchase was the Sofitel Sydney Darling Harbour. The hotel boasted an exceptional location, brilliant views and exciting potential, but he immediately noted that many spaces didn’t seem optimised from a yield point of view.

“We had a storeroom piled with boxes that enjoyed beautiful views of Darling Harbour–not very clever utilisation of space, I concluded,” said Dr Schwartz. “It was a fantastic area that we converted into a two-storey luxury spa that is now one of the best in Sydney. From zero revenue to max yield.

“We also reviewed the functionality of our top-floor Sofitel lounge because while the principal goal was to provide a bespoke haven for our premium guests, we also believed we could provide a luxe rooftop experience for Sydney locals wanting a very special late-night bar experience.

“We could combine the two in one, because most traditional executive lounge guests are gone by early evening. It’s about balance – we look after our traditional guests but opened this premium piece of real estate to a very discerning local market.

“When I bought the Hilton in Surfers Paradise, I discovered a vast executive lounge that was servicing what was principally a leisure market. It had great views, so it made far more sense to convert the area into nine guest rooms. We were able to transform an unused portion of the day spa/garden area into a new executive lounge with a lovely green outlook, and effectively everyone was happy.”

Dr Schwartz says that he learned the art of ‘space saving’ from his father Dr Bela Schwartz, who had an eye for converting empty spaces into profit centres.

“I look back at my purchase of what was then the Citigate Sebel Sydney in Surry Hills in 2006. I rebranded the hotel to Rydges Sydney Central but immediately noticed that the property’s footprint provided me with the potential to expand the room inventory by adding 30 new rooms onto the smaller tower block as well as building a new conference room over the porte cochere.

“We even added a Sydney Brewery outlet and a cinema into a void area because Surry Hills is full of creatives wanting to show private screenings and it has proved a big selling point for conference groups. PowerPoints with popcorn are a hell of a lot more attractive proposition!

“That really was a case of creating something out of nothing, and it really maximised the value of my investment.

“One other area property owners should be reassessing is rooftops. With leisure travel increasingly dominant, hotels can increase their attractiveness by adding a rooftop pool (and possibly bar), as councils are more inclined to allow these facilities than extra accommodation.  I already have one approval for a rooftop pool in Sydney CBD, and an application is pending for another.”

Is it time to replace RevPAR with RevPAM?

Hoteliers will know only too well the mantra that empty rooms and areas within a property generate no revenue. We deal with the ultimate perishable inventory.

Former sales and marketing personnel were transformed into revenue and yield managers, but what was often overlooked was whether the available space in the hotel was being effectively deployed to deliver maximum revenue. Hotel owners, in consultation with the hotel operator, can look beyond the perceived borders to recognise new areas of opportunity.

He probably didn’t realise it at the time, but Jerry was an early disciple of RevPAM.

RevPAM stands for revenue per available square meter. Rooms are obviously critical, but for hotel owners and asset managers a performance metric to measure the profitability of alternative spaces within a hotel – such as workspaces, parking, meeting rooms, and event spaces – makes considerable sense, especially in prime CBD locations in Sydney, Melbourne, Perth and Auckland.

Hotel design was very formulated until the early 2000s, with hotel brand standards determining interior design, rather than acknowledging the changing market. Then brands such as CitizenM came into the market, upending how space was utilised. Lobbies suddenly became “living” areas, with reception staff also serving drinks and light foods from refrigerators.

Early hotel designers would have been horrified to see the “clutter” that was added to lobbies. The clean, frigid spaces that were designed to make a visual impression, but not to be “lived in”, were now full of people all day, drinking macchiatos, in conversation and clicking away on their computers, while increasing the hotels share of wallet F&B is a far greater priority.

Hotels have invested heavily in transforming “typical” all-day hotel restaurants into destination restaurants focusing on local cuisine and character. Global hotel groups have tried to outsource restaurant spaces to local hospitality groups to make them less hotel-centric and more destinational.

Rooftops can lift the ceiling on profits

Until the 2000s, the hotel rooftop was the exclusive province of the hotel engineer. This was an area dedicated to functionality, not creativity. Despite the natural desire for guests to be outdoors, even during winter months, owners often ignored the potential of courtyards or rooftop terraces to connect to food and bar operations, despite offering a differentiating factor for guests, and the potential to attract locals for additional revenue.

My colleague Joseph Sim identified a decade or so ago that almost every Bangkok hotel owner decided that a rooftop bar and entertainment area was the new essential for hotel profitability, while in Australia and New Zealand, it took a global event in March 2020 to highlight the value of outdoor spaces. Helped by a relaxation in council regulations, suddenly hotel F&B outlets were spreading out onto the street or opening in unused courtyards, a trend that continues today.

Outside areas and rooftops can also be attractive for meeting and function organisers. With most cities in Australia enjoying a temperate climate for much of the year, a hotel that can offer an alternative to the plain internal conference space for functions builds a huge advantage.

Hoteliers that treat hotel spaces as assets, can optimise their offerings to maximise revenue.

When it comes to the 2026 budget discussion, if everything has been squeezed out of the rooms and F&B teams, maybe it is time to look at all the storerooms and back-of-house areas and ask whether they can be repurposed to create a guest experience and generate revenue.