First, investors and developers conduct a detailed analysis of the possibilities for bringing their idea to fruition—that is, whether or not the project is viable. These types of studies can be conducted by experienced staff from the development team itself or by hotel consulting firms, as they tend to yield more accurate results. One example of this is our consulting firm, IHCS ( International Hotel Consulting Services), which offers comprehensive hotel consulting and management services.
A feasibility study can be supplemented by the development of a solid business plan that outlines the financial requirements, as well as the strategies needed in each area to meet the established objectives. The success or failure of your hotel project will depend largely on the accuracy of these projections, since factors such as the market, its evolution, the competition, and available resources—among others—will determine the path to follow during the startup process.
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What are the components of a feasibility study?
Some of these factors can be summarized as follows:
Market Division
This phase of the study covers geographic and economic information about the surrounding area, the available market, distribution channels, and existing attractions in the area. This helps us determine which type of market our new hotel should target. At this point, the developer must ensure that the hotel can attract a sufficient number of guests to make the hotel business profitable, and must also anticipate staffing needs.
Competition
The next step is to assess the competition. It’s time to assess our position in the market. To determine this, developers need to understand the competitors’ market targets, their occupancy rates, the average number of rooms, as well as their services and amenities. It’s also important to evaluate the designs of other potential projects currently under construction.
Location
Once investors have established a foothold in the hotel market, they must decide whether the chosen location is suitable for building a hotel. Assessing the distance to key attractions—including the business district and recreational areas—along with preliminary site preparation, the potential for future expansion, and environmental regulations affecting the site, all play a key role in this phase.
Lawsuit
Demand analysis involves refocusing on the target market, this time to determine the projected occupancy rate and, ultimately, to calculate the average room rate. At this stage, it is important to document the reasons for travel and both current and projected expenses for the coming years among tourists visiting the area, as well as new lodging options, changes in seasonal costs, average length of stay, and modes of transportation. Based on these factors, we can divide demand into three types: current, latent, and unmet.
Facilities and Services
After calculating demand and occupancy rates, the next step is to decide what type of hotel to build and what size it should be. For the project to be viable, occupancy rates must be around 60%; otherwise, if a hotel is built that is too large for the projected demand, occupancy may be significantly low. Infrastructure studies lead us to the construction of the building, which must be designed to meet market needs.
Financial Estimates
These types of valuations not only help investors make the final decision to get involved in the project, but also assist them in securing financing. This makes it possible to forecast the revenue from the hotel’s various departments, along with the costs of construction, opening, and operation of the property.
Ultimately, we are faced with the decision to become part of a new hotel project, a major step that involves committing certain valuable resources, such as money and time, but that will reliably meet market needs.
