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Hotel Feasibility Study

This document outlines the key steps involved in conducting an effective hotel feasibility study: 1. Location analysis to evaluate the attractiveness and risks of the site, transport links, and labor supply. 2. Calculating total project costs including development, operating costs, licenses, taxes, equipment, and labor. 3. Analyzing local hotel supply and demand through research with tourism boards to project occupancy levels and rates. 4. Establishing room rates and year-round occupancy projections after benchmarking competitor hotels and costs. 5. Projecting revenue sources from rooms, food & beverage, and events using occupancy and rate projections. 6. Calculating the projected return on investment using metrics like

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Jalaludin Mohamad
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2K views5 pages

Hotel Feasibility Study

This document outlines the key steps involved in conducting an effective hotel feasibility study: 1. Location analysis to evaluate the attractiveness and risks of the site, transport links, and labor supply. 2. Calculating total project costs including development, operating costs, licenses, taxes, equipment, and labor. 3. Analyzing local hotel supply and demand through research with tourism boards to project occupancy levels and rates. 4. Establishing room rates and year-round occupancy projections after benchmarking competitor hotels and costs. 5. Projecting revenue sources from rooms, food & beverage, and events using occupancy and rate projections. 6. Calculating the projected return on investment using metrics like

Uploaded by

Jalaludin Mohamad
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Hotel Feasibility Study, Step 1

when Planning a New Hotel or


Resort
inShare

In over ten years of helping hotels to open and


remodel successfully, we have seen time and again at Xotels how indispensable a
feasibility study is. We have also seen how many would-be hoteliers simply assume
that their vision will succeed, without conducting any notable research on building a
hotel business that will be consistently profitable and competitive. In this article we
look at the steps involved in carrying out an effective hotel feasibility study.

What is a hotel feasibility study and do you need one?

As the name suggests, a feasibility study investigates your hotel proposal to see if it
is feasible as a sustainable, profitable business model. It does this by considering its
viability relating to market, location, costs and financing. A feasibility study forms
the cornerstone of your preparations for your new or remodelled hotel. It shows
investors how they will receive a return on their investment (ROI). It is therefore ill-
advised to proceed without carrying out this crucial investigatory and illuminatory
step.

Below you will find a template plan and approach the expert team of our hotel
consulting company takes to put together a comprehensive validation report,
based of financial and market analysis, to determine the viability of a new
hospitality project or lodging concept. 
The key steps of an effective hotel feasibility study

1. Location analysis

Studying proposed sites for your hotel or resort aims to answer a number of
questions critical to the success of your hotel project. What makes the location an
attractive site? Is there a supply of labour sufficient in number and quality? What
human resource costs can be expected? Is the hotel supported by easy transport
links? What are potential risks and advantages associated with the local area?

2. Total costs calculation

This includes the development and architectural costs prior to opening the hotel.
Then there are the operating overheads which the hotel will incur, including
licences, taxes, equipment, furniture, insurance, human resources, inventories,
electricity, water and more.
3. Local hotel supply and demand investigation

This involves analyzing all hotels in the local area, chiefly their competitiveness.
Information can be found with tourist boards, tour operators and travel research
groups. Knowing local hotel supply and demand helps in projecting occupancy
levels and rates for your hotel, one of the key elements in establishing its economic
feasibility.

4. Room rates and year-round occupancy levels

After establishing hotel supply and demand, your own hotel’s competitiveness, your
projected operating costs, desired ROI, and crucially, benchmarking your
competitor hotels, you can focus on room rates. Year-round projections for
demand will go a long way to informing your pricing decisions.
5. Establishing and projecting hotel revenue sources

The main sources of revenue for your hotel will come from room stays, food and
beverage, and events such as conferences and meetings. Using your projections for
average year-round room rates and occupancy levels, you can project sales from
different revenue sources, including food and beverage, leisure and events.

6. Hotel feasibility study projected ROI

One of the most important parts of your hotel feasibility study is the projected ROI.
ROI is worked out by using a number of metrics, including internal rate of return
(IRR), net present value (NPV), debt coverage ratios and discounted cash flow (DCF),
as well as others. They help to show if the investment return is enough to proceed
and if you will need to find financing from elsewhere.
If so, will the lenders of this capital be content with the projected ROI? If not, the
hotel proposal can be abandoned altogether or it can be altered to make the return
on investment attractive enough to proceed, such as changing site, tweaking room
rates and reducing costs. A clear and comprehensive report is what banks,
institutinal or privite investors (famliy offices) will be looking for.

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