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Market Evaluation and Feasibility
We are helping hotels to open and remodel successfully, we have 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. We involved in carrying out an effective hotel feasibility study.
We 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 remodeled hotel.
The key steps of an effective hotel feasibility study.
Studying proposed sites for hotel or resort aims to answer a number of questions critical to the success of the 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?
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 licenses, taxes, equipment, furniture, insurance, human resources, inventories, electricity, water and more.
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.
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.
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.
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, institutional or private investors (family offices) will be looking for.