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Importance of a feasibility study before building a hotel

Importance of a feasibility study before building a hotel

Why do we date or live-in with someone before we marry them? It is because we want to make sure we are compatible and meant to be with them before making a lifelong commitment. We might call this a feasibility study. Building a hotel is also a commitment although of a different kind.

Researching, assessing, and conducting a feasibility study before committing yourself to a hotel project is not only a wise thing to do but also indispensable.

Whether you are an investor or in search of one, a feasibility study of the concerned hotel project and related investment is the point from where to begin.

What is a hotel feasibility study?

A hotel feasibility study is an analysis of a probable hotel building project to see if it would make for a sustainable and viable financial investment.

It will be an inquiry into the required amount of investment, financial determinants, expected revenue, rate of return of investment, market viability, and location study amongst other things.

At International Hotel Consulting Services, we provide you with a comprehensive and detailed hotel feasibility study including a thorough investigation of the project’s financial requirements and rate of return of investment in particular.

Save your time, energy, and money while our consultants lay the groundwork for making sure you associate yourself with profitable hotel investments.

What does a hotel feasibility study entail?

Location Analysis

Location is key when it comes to investing in hotel building projects. This is why an understanding and knowledge about the location and site of construction is necessary.

The location analysis also includes the geographical and topographical description, proximity from airports, tourist spots, and other popular locations.

Restrictions, rules, and regulations regarding construction such as height restrictions, etcetera in are also included.

Market Review

For clinching a profitable hotel deal, a knowledge of the existing market in the area is essential. At IHCS, with our extensive experience, we include a thorough study of the market exclusively for you.

The market review includes an update on competitors, current market trends and predictions. We conduct a thorough study of all these variables and guide our clients through the process of deciding the hotel profile, i.e. family hotel, rustic or gastronomic hotel, etc.

Propose a brand strategy

A well-structured brand strategy is a key ingredient in the recipe of success in hotel investment projects. A promotional and sales strategy is an important determinant of the rate of investment returns. In order to plan your sales strategy, it might be worth gathering a team of sales professionals to see if they have any suggestions on how to bring sales in. Perhaps the hotel could even consider hosting an event to discuss sales tactics. There are some sales kickoff agenda items online to inspire the sales team. Hopefully, that will help them to come up with an effective strategy.

Professionals at IHCS provide outlines for a promotional brand strategy according to the scale of the project and trends of the market.

Expenditure estimates / Financial feasibility analysis

The mainstay of our expert services is our thorough analysis of an upcoming project’s financial feasibility.

Several factors have to be taken into consideration such as building costs which include the cost of land, construction costs, furnishing, equipment, maintenance and fixtures, electricity, water, and insurances among others. If you ultimately decide that you want to design and construct custom metal buildings to act as the overall structure of your hotel, then making sure that you have an accurate price for this particular type of project will be very important, as it could make all the difference when it comes to your finances. Non-building costs and soft costs such as staff salaries, staff training, advertising, and taxes.

We investigate all probable factors and arrive at conclusions on the technical and financial feasibility of a potential hotel project. Depending on the situation, we may even decide to carry out a financial model so we can charter costs and revenue projections that can be considered now, and at various times in the future. This will help to give everybody a better idea about their financial circumstances. The investment needed to execute the project as well as the return of investment are also ascertained by our team.

ADR and Revpar Projections

ADR (Average Daily Rate) and Revpar (Revenue Per Available Room) are trusted indicators to map the financial success of any hotel.

At IHCS our experts calculate ADR and Revpar projections for a proposed hotel based on the existing rates of other hotels in the area.

The ADR and Revpar projections will help you in monitoring the financial performance of a hotel project.

Visitor Statistics

A study of tourists visiting the area where you plan to build a hotel is crucial. The frequency of their arrival in the area during different parts of a year, tourist habits and preferences, and spending patterns are investigated by professionals at IHCS.

Based on research on the above-mentioned aspects we build a tourist profile which will further be used to determine various other aspects of the hotel such as prices of rooms and services.

A study of labour

At IHCS, we undertake an analysis of the required human resources and labour and related factors. The availability of technicians and labourers, their sourcing, supply and quality is inquired into as a part of our feasibility study.

We also suggest solutions to labour oriented problems that could arise and prepare a layout for costs that have to be incurred for procuring labour including fee, transport, and accommodation. It’s why more hotels are using BMarko modular structures or similar for the hotel, as this means that at the same time the foundations are being laid, other elements can be completed away from the site. This dramatically reduces the time to market as well as construction and labor costs.

Rate Analysis

This includes an investigation into supply and demand, rates and prices of hotels in the area where the hotel project is going to be established.

A study of their rates and services would the basis of making occupancy rate and prices projections for the proposed hotel. This investigation is essential for determining a potential project’s financial feasibility and stability.

ROI (Return on Investment)

The purpose of calculating the return on investment for a hotel construction project is to predict whether the said project would yield profits or losses.

The formula for calculating ROI is = (investment revenue-investment cost)/ investment cost. However, calculating ROI isn’t as simple as the formula. For an accurate ROI, the investment revenue and cost revenue have to be accurately estimated.

IHCS professionals help you decide the financial feasibility of a hotel investment with accurate ROI calculations.

Internal Rate of Return

Financial feasibility of investment is also determined by the internal rate of return of a project. It is the rate of return of investment which excludes external factors such as inflation.

An investment is considered to be viable if the IRR is either more than or equal to the cost of investment. If it turns out to be lower than the investment then the potential project is not deemed profitable.

Potential investors choose to make their investments depending on the IRR. Our team of experts calculate IRR after considering all the variables.

Competitive Analysis

A competitive analysis of existing hotels in an area before venturing into constructing a new hotel next to them is very crucial. In addition to the rate analysis, ADR, and Revpar projections an in-depth competitive analysis of other hotels in the area is required.

Knowledge of the total number of existing and future competitors, the scope of their services, popularity, online reputation, star rating, target customers and market penetration are some of the aspects of a thorough competitive analysis.

For an extensive competitive analysis of local hotels, you can reach out to our professionals at IHCS.

Identifying Revenue Resources

Calculating and projecting expected revenue resources from a project is a prerequisite for gauging the financial feasibility of any project.

The primary revenue sources for any hotel are its room stays, food, beverage, and hosting events, conferences, meeting etc. Calculating the annual sales from these sources helps in arriving at estimated revenue costs.

The seemingly simple calculation of revenue resources requires expertise and experience which we are happy to offer at IHCS.

How can we help you with hotel feasibility studies?

We offer exhaustive hotel feasibility studies for any hotel construction project around the world. Our painstaking investigations explore all possible risks and opportunities that can arise in this business venture.

At IHCS we strive to understand your vision and plans for a proposed hotel establishment and accordingly strategies a course of action for a feasibility study.

As elaborated above, we microscopically scrutinise every aspect of hotel construction including geographical factors, market analysis, building costs, finances, and expected returns.

The hotel business industry is continuously evolving which is why it is prone to fluctuations and risks.

Letting our expert and experienced professionals manoeuver a way out of these ever-changing dynamics will minimise the risks and maximise the benefits.

We kindly invite you to schedule a meeting with us for hotel investment consultation and solutions.

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