Hotel Feasibility Study: Maximizing Revenue And Growth

Introduction to Hotel Feasibility Study

A hotel feasibility study is like a crystal ball for hoteliers and is crucial in bringing a new hotel to life. It allows them to peer into the future glimpse of what the hotel’s performance might look like. 

Hoteliers can make informed decisions about whether to bring their hotel dream to fruition by carefully analyzing various factors like: 

• Market demand
• Competition
• Location
• Operational costs
• Financing
• Target market
• Marketing and branding
• Legal and regulatory considerations

Think of it as a GPS for the hotel industry, helping hoteliers navigate the unpredictable landscape and reach their desired destination – success.

The global hotel industry is a thriving market, with a current value of around 822.86 billion USD and an expected growth rate of 9.2% per year over the forecast period (2022-2029). This translates to a projected market value of 1,663.82 billion USD by 2029.

With so much potential for success, it’s no wonder that entrepreneurs and investors are constantly looking for opportunities to break into the hotel industry. However, building and operating a hotel is complex and expensive, and it’s essential to consider all factors that can impact the project’s success. That’s where a hotel feasibility study comes in.

Want to learn more about the basics of a feasibility study? Check out our detailed guide on feasibility studies here: Feasibility Studies: The Essential Tool for Making Informed Business Decisions

What is a Hotel Feasibility Study?

A hotel feasibility study is a comprehensive analysis of the potential success of building, purchasing or renovating a hotel. This study assesses the potential risks and rewards of a hotel project by conducting various analyses, such as:

• Market Analysis
• Competition Analysis
• Financial Analysis
• Development Cost Analysis
• Risk Assessment

In addition, various other factors are taken into consideration, such as the hotel’s location, the size and type of hotel rooms, the amenities offered, and the pricing strategy, to assess the feasibility of a hotel accurately. Investors and hotel owners usually conduct a hotel feasibility study before making a significant investment in a hotel project to help them make informed decisions about whether or not to move forward.

The importance of a Hotel Feasibility Study

A hotel feasibility study is not just a simple analysis of a proposed hotel project – it is a glimpse into the future. By taking various factors into account, a hotel market feasibility study helps investors, lenders, and hotel owners determine the potential success of a project and plan for its future growth.

But the benefits of a hotel feasibility study extend beyond just the investors and hotel owners. It can also significantly impact the local community, providing insight into the potential economic benefits that a new hotel may bring, such as job creation and increased tourism.

The following table outlines some benefits investors, lenders, hotel developers/owners, and the local community can gain from a feasibility study.

Components of a Hotel Feasibility Study

1. Area, Demographic, and Neighborhood Analysis:

This section of the hotel feasibility study provides hoteliers with important information about the local market for their proposed hotel. This analysis includes information on the local population, including age, income, and employment rates, as well as on local tourist attractions and transportation options.

Purpose: The purpose of this analysis is to help hoteliers understand the needs and preferences of the local market and to identify any potential challenges or opportunities that may impact the hotel’s success. 

Example: If the local population is primarily young professionals with high incomes, a hotel may be more successful if it focuses on offering high-end amenities and services. If the local population is primarily families with children, a hotel may be more successful if it focuses on providing family-friendly amenities and activities.

The area, demographic, and neighborhood analysis section may include the following information:

• Local population data
• Tourist attractions
• Transportation options
• Competition

2. Site Review

This section of the construction feasibility study provides hoteliers with detailed information about the location where they will build their hotel. A site review in the feasibility study for a new hotel project often suggests the suitable nature, size, and mix of function space for the market and location. It also addresses any environmental concerns that may need to be addressed, helping the hotel owner make informed decisions.

Purpose: The purpose of a site review is to help hoteliers understand the potential strengths and limitations of the location and to identify any potential challenges or opportunities that may impact the hotel’s success. 

Example: A site with a beautiful view may be an attractive feature for a hotel, while a site with a steep slope may pose challenges for construction.

The site review section may include the following information:

• Physical characteristics of the site
• Environmental concerns
• Zoning and land use regulations
• Land acquisition costs

3. Proposed Development Recommendations and Costs

This section of the hotel feasibility study provides hoteliers with detailed information about the specific design and amenities of the hotel, along with an estimate of the costs associated with those recommendations. This includes information on the size and layout of the hotel, the types of rooms and services that will be offered, and any exceptional amenities or features that will be included.

Purpose: The purpose of the proposed development recommendations and costs is to help hoteliers understand the potential costs and benefits of different aspects of their hotel project and to identify any potential challenges or opportunities that may impact the hotel’s success. 

Example: Including a high-end spa and fitness center in the hotel may attract a more affluent clientele, but it may also increase the project’s overall cost.

The proposed development recommendations and costs section may include the following information:

• Size and layout of the hotel
• Types of rooms and services offered
• Amenities and additional services offered
• Construction costs

4. Market Analysis

This section of the hotel feasibility study provides hoteliers with detailed information about the local market for hotel rooms, including information on the supply and demand for hotel rooms, the competition from other hotels, and the pricing of hotel rooms in the area.

Purpose: The purpose of the market analysis is to help hoteliers understand their hotel’s potential demand and identify any potential challenges or opportunities that may impact the hotel’s success. 

Example: If the market is oversaturated with hotels, it may be more difficult for a new hotel to attract guests. On the other hand, if there is a shortage of hotel rooms in the area, a new hotel may be able to capture a significant market share.

The market analysis section may include the following information:

• Supply and demand for hotel rooms in the area
• Competition from other hotels in the area
• Pricing of hotel rooms in the area

5. Proposed Development Occupancy and Average Daily Rate (ADR)

This section of the hotel feasibility study provides hoteliers with estimates of the occupancy and average daily rate (ADR) their hotel will likely achieve once it is open for business. This includes a forecast of the number of rooms that will be occupied on a daily basis and the average price that will be charged for those rooms.

Purpose: The proposed development occupancy and ADR aims to help hoteliers understand their hotel’s potential revenue and profitability and to identify any potential challenges or opportunities that may impact the hotel’s success.

Example: A hotel with a high occupancy rate and a high ADR is likely to be more profitable than a hotel with a low occupancy rate and a low ADR.

The proposed development occupancy and ADR section may include the following information:

• Forecasted occupancy rate
• Forecasted ADR
• Seasonal fluctuations
• Market trends

6. Financial Analysis

This section of the hotel feasibility study provides hoteliers with a detailed assessment of the financial viability of the hotel project. This includes an estimate of the initial costs of building and opening the hotel, as well as projections of the hotel’s revenue and profitability over time.

Purpose: The purpose of the financial analysis is to help hoteliers understand the potential benefits of their hotel project in monetary terms. Most hotel owners use a feasibility study to obtain permanent financing for their business. The lender uses the feasibility study to determine the likelihood of success for the new hotel project and to assess its ability to generate sufficient revenues to cover its costs and provide a return on investment.

Example: A hotel with high projected profits may be more attractive to potential investors or lenders, while a hotel with high projected costs may require additional financing to be successful.

The financial analysis section may include the following information:

• Hotel Business Plan (If any)
• Initial costs
• Operating costs
• Revenue projections
• Profit and loss projections
• Return on investment (ROI)
• Sensitivity analysis

7. Feasibility Analysis

This section of the hotel feasibility study provides hoteliers with an evaluation of the overall feasibility of the hotel project. This includes comparing the hotel’s projected costs with its expected value and assessing risks or uncertainties that may impact the project’s success.

Purpose: The purpose of the feasibility analysis is to help hoteliers understand their project’s potential risks and rewards and to identify any potential challenges or opportunities that may impact the hotel’s success.

Example: A hotel project with high projected costs and low expected value may not be feasible. In contrast, a hotel project with lower projected costs and a higher expected value may be more attractive.

The feasibility analysis section may include the following information:

• Comparison of projected costs to the expected value
• Risk assessment
• Sensitivity analysis
• Recommendations based on the results of the feasibility analysis

OGSCapital: Your trusted partner for a comprehensive Hotel Feasibility Study

Are you looking to launch a successful hotel project? OGSCapital is the premier choice for a comprehensive hotel feasibility study. Our team of expert feasibility study consultants has years of experience in the hospitality industry, and we know what it takes to create a successful feasibility study report.

Unlike other brands that rely on hotel feasibility study samples or templates, we create all our documents from scratch, ensuring that your feasibility study meets your specific needs. We offer our clients a range of crucial benefits, including results-oriented solutions, strategic advice, high-quality market research, best practices and guidance, and full customization to ensure that your feasibility study meets your specific goals.

But how much does a hotel feasibility study cost? The price can vary depending on the size and scope of your project. OGSCapital offers competitive rates and will work with you to create a customized proposal that fits your budget.

In addition to hotel feasibility studies, we also offer a range of other services, including:

• Business plan
• Feasibility study (Check out our recent real estate feasibility study article here: Real Estate Feasibility Study)
• Pitch decks
• ICO whitepapers
• Private placement memorandum
• Confidential Information Memorandum
• Immigration business plans, and much more.

No matter your needs, OGSCapital has the skills and experience to help you succeed.

Take your time with your investment. Choose OGSCapital and get expert guidance from the best hotel feasibility study firm. Contact us today to learn more.

FAQ

1. How to conduct a feasibility study for a hotel and resort?

If you are considering the development of a new hotel and are looking for resources to help guide you through the process, downloading a generic hotel feasibility study template or sample may not be the most practical option. Instead, it is best to work with a professional firm that specializes in conducting custom feasibility studies for hotel projects.

At OGSCapital, we understand that every hotel development project is unique and requires a tailored approach. We follow a structured process for writing hotel feasibility studies that include defining the project scope, conducting market research, assessing financial viability, developing strategies, and preparing the final report. We customize our approach to each project to ensure that the hotel extended stay feasibility study meets our client’s specific needs and goals.

2. How may hospitality management use a hotel feasibility study?

Hospitality management can use a feasibility study to determine the feasibility of a new hotel project, identify areas for improvement in an existing hotel, develop a business plan, and attract investment. It can provide valuable insights and guidance on market demand, competition, financial performance, and strategic planning. Contact us today to learn more about how we can help you succeed.