Welcome to our series of articles on feasibility studies.
- What is a Feasibility study?
- What is a bankable feasibility study?
- How to do a feasibility study?
- Feasibility study consultants: expertise needed
- Cost of a feasibility study
- Car Park Feasibility Study: Key considerations
- Hotel Feasibility Study: Methodology
- Feasibility study of solar PV projects: Key components
- Feasibility study of real estate developments
- Feasibility study of marina projects
Today we are going to give you more details on how we work feasibility studies for hotel projects as tourism consultants.
In the world of hotel development, a hotel feasibility study plays a vital role in evaluating the economic viability of a proposed project. Typically required by mortgage lenders or investors, this study examines whether the projected value of the hotel development surpasses the associated costs. Conducted by specialized independent consultants, a comprehensive feasibility study analyzes revenues, expenses, and net income to determine the financial feasibility of the project.
A hotel feasibility study is a crucial step that involves an in-depth analysis of various factors. In this article, we will explore the essential elements and methodologies of a hotel feasibility study, providing valuable insights for investors and developers.
The following major parts should be included in a hotel feasibility and financial analysis study:
- Location Assessment
- Market Analysis
- Technical considerations
- Financial Analysis
- Risk Assessment
Let's go one by one with further details below:
Choosing the right location is critical for the success of a hotel project. Considerations one may have include:
- Transportation access: Accessibility and proximity to transportation hubs, airports, major highways, and public transportation.
- Evaluation of local attractions, amenities, and business centers to gauge the potential for guest demand. What are the demand generators for leisure and group travelers?
- Assessment of the neighborhood's growth potential, demographics, and compatibility with the target market. How large is the typical household? What is the area population and is the number increasing or decreasing?
- Household economics: What is the unemployment rate? What is the median income? How much disposable income do area households have?
- Analysis of zoning regulations, land availability, and potential development constraints or opportunities.
- Area economics: Which large corporations are based in the area? Who is growing or shrinking? What is office vacancy rate?
Location analysis in Hotel Feasibility study. Source: Aninver
We will also review the subject parcel’s size, access and visibility, topography, availability of utilities, and other site-related necessary attributes. And it will be very important to understand demand generators for hotels.
The consultant will analyze occupancy, average daily rate (ADR), and revenue per available room (RevPAR) of a market area. A comprehensive market analysis is essential to understand the demand, competition, and market dynamics.
How to get that information? A hotel market report from STR, identification of hotels under construction and interviews with management of competitive hotels.
Key considerations include:
- Evaluation of local and regional tourism trends, visitor statistics, and economic indicators that may impact hotel demand.
- Identification and analysis of competitor hotels, including their size, quality, market positioning, and performance metrics. We will also understand their performance in last years.
- Market segmentation and identification of target markets based on traveler profiles, preferences, and trends.
- Assessment of market drivers, such as major events, attractions, business sectors, and government initiatives.
- Recent and potential hotel openings: How many hotels have opened in recent years and how have they impacted the market? How many hotel projects are in the works? Types, rooms, etc.
- Market segmentation and market penetration: What is the market segmentation and penetration of each competitor in the market?
Market analysis in Hotel Feasibility study. Evolution of visitors. Source: Aninver
We will analyze its likely future performance in terms of occupancy, ADR, and revenue per available room (RevPAR).
Thorough evaluation of technical aspects ensures a hotel project's functionality and efficiency. The general steps include the following:
- Classification and size of the hotel based on market demand and local regulations.
- Room and suite configurations, amenities, and facilities required to meet guest expectations and industry standards.
- Evaluation of architectural design, construction costs, renovation requirements, and compliance with building codes.
- Assessment of technology and systems, such as property management systems, security, energy efficiency, and sustainability initiatives.
Technical considerations in Hotel Feasibility study. Source: Aninver
Conducting a comprehensive financial analysis is crucial to assess the project's profitability and return on investment. Key considerations include:
- Estimation of initial investment costs, including land acquisition, construction, interior design, and pre-opening expenses.
- Calculation of operating expenses, including staffing, utilities, maintenance, marketing, and administrative costs.
- Revenue projections based on room rates, occupancy rates, average daily rates (ADR), and revenue per available room (RevPAR).
- Financial metrics such as net operating income (NOI), return on investment (ROI), internal rate of return (IRR), and payback period.
Financial analysis in Hotel Feasibility study. Source: Aninver
Evaluating risks associated with a hotel project is crucial to minimize uncertainties. The following are some aspects to consider:
- Market risks, such as changing travel patterns, economic downturns, competition, or shifts in demand.
- Operational risks, including staffing challenges, regulatory compliance, reputational risks, and safety/security concerns.
- Environmental risks, such as natural disasters, climate change impacts, or seasonal variations affecting tourism demand.
- Mitigation strategies and contingency plans to address identified risks and challenges.
With extensive experience in the tourism and hospitality sector, our team has established itself as a trusted advisor and consultant in the industry. Over the years, we have successfully assisted numerous clients in developing and implementing strategies to capitalize on the potential of the tourism and hospitality markets.
Our expertise covers a wide range of areas within the sector, allowing us to provide comprehensive support to our clients. From conducting market studies and feasibility assessments to advising on investment opportunities and tourism development plans, we have a proven track record of delivering valuable insights and actionable recommendations.
See below a few of the consulting projects we executed lately:
- Feasibility Study for a new marina in the island of San Andrés (Colombia) through PPP
- Feasibility study of a real estate WAQF project in Cotonou (Benin)
- Feasibility study and analysis of strategic alternatives of a touristic development in Natal
- Alternatives and definition of proposal for the repositioning of a 3* hotel in Marbella
- Hotel Development in Ardales (Malaga, Spain)
- Financial and development advisory for Zanzibar hotel project
- Strategic growth and expansion plan for the hotel chain
- Support to a leading Spanish hotel operator in its expansion process in Tunisia
- Support Vastint’s entry into the Spanish hotel market via new hotel development