Everything You Need to Know About Hotel Feasibility Studies
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 when done with mindful consideration about how to carry it out effectively.
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, the focus areas for the hotel feasibility report, and the overall purpose of this critical process.
What is a Hotel 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 supply and demand, 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 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 you could be making to your project to give it the best chance of commercial success.
How much does a hotel feasibility study cost?
You may see the value in conducting a feasibility study, and ask yourself, “How much does a hotel feasibility study cost?”
The purpose of conducting a hotel feasibility study is to generate a set of very thorough and data-driven recommendations, so its costs are usually considerable. This is especially true if you choose to partner with established hotel feasibility study companies that charge higher rates for their proven services. That said, lacking access to a feasibility report can be far more costly, as its insights can save you significant capital further down the line.
The costs behind hotel feasibility studies can vary widely depending on the scope of the project, its location, and the current dynamics of the market.
For example, it is typical to expect a feasibility study for a medium-sized hotel in a competitive urban market to range between $20,000 and $50,000 USD. Smaller boutique hotels or those in less competitive markets might be able to conduct a feasibility study for a slightly lower price, but typically $20,000 USD is a minimum from a reputable independent firm. Although larger and more complex projects, such as luxury resorts or mixed-use developments, can see costs climb to $100,000 USD or more.
Costs can reach such high figures because they typically include a wide range of services. These include market analysis, calculating cash flow, evaluating the site’s potential, consulting services, and more. Not to mention, utilizing the services of larger international firms with extensive expertise may also mean paying premium fees.
Rather than an expense, think of this report as an investment in the foundation of your business strategy. It can help you to make more informed choices as the project progresses. It also helps set timelines that are critical to operational plans, projections for profitability, and return on investment. Plus, it is a way to avoid the common pitfalls that can prove more costly than investing in generating the report.
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 always be downsized in line with the findings of the study. This way, developer’s end up building something with long-term potential before incurring devastating costs. This turns 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,t and detailed answers to questions about the strategy behind the project, the projected returns, and the project’s sustainability. Conducting a hotel development feasibility study makes raising funding easier, adds strength to your proposal, and shows partners concrete evidence that your project will hit the required marks.