A preliminary step in the valuation process is to classify the various hotel/motel properties in a geographic area such as Calgary, Edson, or Fort McMurray, into segments by reference to market delineated areas as follows:

Location is a major factor in determining grouping of hotels/motels for analysis and valuation purposes. Generally hotels/motels are grouped by the market as follows:

• City Centre hotels/motels are located within urban downtown areas spanning core and secondary locations and cater to the business, convention and leisure markets. They are usually the most expensive to build with high land costs and reinforced concrete and steel construction components. These costs are typically offset by the higher room rate and occupancy levels they achieve. Parking is expensive and often shared where the facility may be part of a mixed use complex and may be operated by a third party.
  
  
• Airport hotels/motels are situated along and around the approach roads to commercial airports and in some larger areas can be physically attached to terminals. Their primary business is the out of town guest, airline crews, and guests due to flight delays. They also serve as a destination for meetings involving out of town attendees. The leisure market does not usually form a large part of business.  Room rates are normally less than in city centres and significant expenses can be incurred by in-house airport shuttle services.
  
  
• Highway hotels/motels are located on or nearby major travel routes and cater to the leisure and commercial market by patrons travelling by automobile.   Good visibility, quick access and ample parking are critical for success in this market.  Facilities on highway locations require the provision of adequate food and beverage either on site or close by.  Construction of new highways routed away from existing facilities can have a significant effect on performance.
  
  
• Suburban hotels/motels are located outside city centres usually along or close by suburban commercial areas. They cater to a mix of the market including commercial, leisure, convention and meeting. Overall costs of these facilities, particularly the land component, are less than city centre properties. However, room rates can be significantly lower than city centre locations.
  
  
• Resort locations cater for the most part to the leisure traveller with some demand from the convention/meeting market, but little from the commercial segment.  Locations vary from beach to golf to ski activities and can be very seasonal businesses.

Obviously, in instances of smaller, one-industry towns, market delineation may not be a factor to be considered. Nevertheless, it is critical that assessors carefully analyze each market both in terms of its geographical location and segmentation within it.  Economies have a significant effect on value and vary significantly from community to community.

As an example, in 2007 Fort McMurray, a city with a population of 64,000, reported eight sales with prices ranging from (rounded) $155,000 to $357,000 per room, obviously as a result of the booming economy and the supply/demand situation for accommodation. On the other hand, the large urban centre of Edmonton with a population in excess of 700,000, reported nine sales with prices ranging from (rounded) $58,000 to $155,000 per room.  These examples demonstrate the significant effect location has on value and is discussed further in Part 7 - Sales Review and Editing.