Everything You Need to Know About Hotel Feasibility Studies

July 12, 2021by Peter Mukulu0

Whether you’re assessing the viability of a hotel development project or looking to get a better grip on how to optimally position your project, a professional hotel feasibility study can be an excellent investment. Embracing the feasibility process will shed a lot of light on how to ensure the business stays competitive and consistently profitable, helping to mitigate a large chunk of development risk. In order to understand the feasibility process better, allow us to take you through what a hotel or resort feasibility study entails, focus areas for the hotel feasibility report, and the overall purpose of this critical process.

What is a Hotel or Resort Feasibility Study?

The study is an in-depth analysis of the project proposal – usually carried out during the planning stages – to assess how the business will perform against the goals set by the owner. The process looks at several key areas, including costs and financing, competitive set and competitive differentiators, market demand and project growth, air access and much more. For current and potential investors, it is an especially important process as it shows how they can position the project to maximize their return on their investment (ROI). For project owners, taking a collaborative approach to the feasibility exercise can help shine a lot of light on what’s been happening in the market, what threats might lie ahead and what tweaks could you be making to your project to give it the best chance of commercial success.

You may find yourself seeing the value in a feasibility study but ask yourself “How much does a hotel feasibility study cost?”. The nature of the study is the produce a set of very thorough and tested recommendations, so hotel feasibility study costs are usually not inconsiderable. With that said, not having access to the information within the report can be far more costly, and a well-structured feasibility process can save you significant capital further down the line. Rather than an expense, think of this report as the foundation of your business strategy. It can help you to make more informed choices as the project progresses, helps to set timelines that are critical to operational plans, projections for profitability and ROI, and a means to help avoid common pitfalls that can prove far more costly than the report itself.

Why Commit to a Hotel Feasibility Study?

There are significant benefits to performing a feasibility study, especially if it is performed early in the planning stages of the project. Let’s take a look at a number of these below.

  • Project Scale and Sustainability

A hotel feasibility study allows those in charge of the project the time, space and support to make meaningful changes within the critical planning stages of a development. A hotel or resort that is unfeasible at a particular scale can be downsized or changed in other ways in line with the findings of the study in order to offer something with potential long-term profitability before critical costs are incurred, turning a potentially unviable project into a successful one.

 

  • Confidence and Fund Raising

In order to attract funding to move your project forward, you have to be able to give verifiable, robust and detailed answers to questions about the strategy behind the project, the projected returns and project’s sustainability. A hotel or resort feasibility study makes raising funding easier, adds strength to the proposal and shows partners concrete evidence that your project will hit the required marks.

The Key Aspects of a Hotel Feasibility Study

A hotel feasibility report addresses aspects of the project relating to the physical property, the local area, a market analysis and more. Let’s take a closer look at some of the key inclusions.

Local Area and Economy

This is a wider perspective of the area the hotel will operate within, looking at the economic, social, environmental and governmental makeup of the location. The analysis will look at population trends in the area, household growth and economics, local tourist attractions and transport links. You’re building your hotel for the long term, so it will be important to compliment your locality and to ensure that your locality can support your employment needs. You may also be reliant on your locality for ongoing revenues, and those expectations need to be built upon realistic comparable in the market.

  1. The Site Review

This review of the land, buildings and structure of the site includes aspects such as connectivity to local utilities (electricity, water and sewerage), whether the site is suited to a project of your size, traffic and access points, physical restrictions on the site, the availability of nearby amenities that complement the proposed hotel or resort, and local environmental or governmental restrictions and zoning laws that can limit building or place additional requirements on buildings on the site. For example, building a hotel on an environmentally site may only be allowed if it meets certain restrictions on capacity and site usage, and implements certain systems to meet criteria for Green buildings.

  1. Proposed Costs for the Development

This is one of the most interesting sections of a feasibility report for a hotel project, and usually works hand-in-hand with proposals from the project’s architectural partners, or at least based on similar projects that have been recently constructed. It looks at the physical size of the project and associated requirements (number of rooms, bathrooms, amenities, restaurants, etc.) as well as costs associated with developing the project independently versus working within a franchise.

  1. Proposed Occupancy

This is a projection closely linked to income projections that is based on the likelihood of the number of rooms being occupied through the different seasons (based on historical performance of similar projects), ability to penetrate the market, demand generators, the average daily rate for the project to be feasible, and more. Applying industry knowledge to get a true and real expectation of the relevance of local and regional comp sets is critical to the success of this metric.

  1. Market Analysis

Similarly, this also impacts on projections for profitability, focusing on a thorough analysis of local and regional markets and proposed target markets. This looks at critical factors including how much a room is expected to earn based on the target market, projected growth in the market and local population, the current state of competitors in the same area and the hotel industry at large, and an analysis of other hotel proposals for the area that may compete with the project the hotel feasibility report is focused on.Top of FormBottom of Form

  1. Financial Analysis

This is the most critical section of a feasibility study in the hospitality industry because all potential investors will rely on this information to determine whether or not it is a worthwhile investment to make. Essentially, this section projects the property’s income generating capacity, budget expenses, operating costs, potential gross revenues, fixed and other expenses, budgeting considerations, profit and loss projections and the net operating income of the property over a set period.

  1. General Hotel Feasibility Analysis

This section brings together all the above elements to assess the viability of the project on a financial level – essentially, to answer the question of whether the money it requires will result in a business that is sustainable over the long-term that will deliver an annual rate of return that will attract investors and its potential value if a sale should occur.

Expert Guidance and Report Development from Hotel and Resort Feasibility Specialists

Determining the economic viability and sustainability of a large project like a hotel or resort requires key insight into local market knowledge, the hotel and hospitality industry, and considerable experience with valuation processes and methodology.

Hospitality Associates International is an established leader amongst the industries best hotel feasibility study companies, delivering the expertise, guidance and experience needed to deliver a comprehensive hotel feasibility report. Our knowledge and insight can help you to move your project forward with confidence. We work to keep hotel feasibility study costs reasonable without compromising on the quality of our reporting. Contact us today – let’s make your project a brick-and-mortar reality.

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