Hotel feasibility study: Examples and costs

What is a hotel feasibility study?

A hotel feasibility study is a financial report that assesses the potential success of a hotel business or development project. The aim is to understand whether the hotel will be a sound investment from a profitability perspective.

A feasibility study looks at factors such as the market, location, cost, and potential revenue of the proposed hotel and is typically undertaken by a third-party company or consultant.

In this blog we’ll cover everything you need to know about hotel feasibility studies, including how to create one.

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Why is a feasibility study so useful for a hotel?

A feasibility study can be crucial for deciding whether or not you should move forward with your project or not. Without the analysis that a feasibility study brings, you won’t have the level of detail required to accurately assess the financial viability of the hotel.

Neglecting the study could mean that you invest in a business which leaves you in debt or that you miss out on a life-changing chunk of profit.

Essentially, the feasibility study will give you a roadmap of how your proposed hotel will, or could, look once established. Sometimes, you may need to adjust your business plan based on the findings or even look for another opportunity elsewhere if the results are not positive.

It will give you key details such as risks, development costs, potential revenue, preferred target markets, competitor analysis and more.

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How to get a hotel feasibility study report

When it comes to preparing a feasibility study for a hotel can be difficult to do on your own, since you need a special set of skills and access to key data for analysis.

Typically you’ll need to engage professional companies or consultants to prepare the study and report on your behalf. This is a time consuming process and can often take weeks or months to complete.

Are there templates and samples for hotel feasibility studies?

While you can certainly find templates and sample documents at websites like projectmanager.com, it’s important to remember that hotel feasibility studies are complex reports that require a high degree of specialisation to complete. In this respect, it’s a better option to engage a company dedicated to the hotel industry and experienced in preparing feasibility studies.

hotel feasibility study

Hotel feasibility study companies and costs

Carefully researching companies and costs will help you get the best feasibility study for your hotel. However, you should approach the exercise knowing that it’s an investment.

Exactly how much one will cost depends on the proposed scale of your hotel project, the size of the local market, the amount of data and analysis required, and how highly regarded and experienced your consultant is. However, you can expect to pay anywhere from a few thousand dollars up to as much as $50,000.

So which companies can provide the service for you? Here are some examples of known consultants that you can reach out to:

HVS (Hospitality Valuation Services): A well respected global firm that specialises in feasibility studies, valuations, and market research.
PKF Hospitality Group: An international firm with broad experience covering the hotel, tourism, and leisure sectors.
CBRE Hotels: Offers comprehensive hotel consulting services with access to a vast network of data resources.
JLL Hotels & Hospitality: Similar to CBRE, JLL offers a wide range of real estate services, including hotel consulting.
Hotel & Leisure Advisors (H&LA): A specialised hospitality consulting firm known for detailed analysis and expertise.
Xotels: Provides hotel management and consulting services, including feasibility studies.

While these are some of the most well known companies globally that can facilitate a feasibility study, it’s highly likely that you’ll be able to find a local provider in your region – with intimate knowledge of your specific market already.

Hotel feasibility study example

As an example, let’s say you think you’ve found the ideal location to build a hotel, or discovered an existing building that you believe could make an amazing hotel.

Instead of diving in headfirst after your customary market research, you decide it’s prudent to conduct a feasibility study to determine if a hotel business can truly be a successful investment.

After you contact and agree to hire a consultant, they’ll spend time compiling the following:

Defining the project: Before any further analysis, the type and style of hotel will need to be confirmed, including its proposed size and target market.
Site review: It will need to be known how the property will be accessed, what amenities are nearby, and what the general neighbourhood is like.
Competitor analysis: It’s essential to understand how many competitors the new hotel will have, and what their unique selling points are. What are their strengths and weaknesses and how are they currently performing?
Demand analysis: A hotel needs guests so the study will need to uncover how popular the destination is and how seasonal the travel demand is.
Segmentation: What types of guests are most likely to book a hotel at the site? Is the town/city commonly focused on business travellers or leisure tourists? And how does this relate to who you, as the owner of the project, want to attract?
Costs: You’ll gain an understanding of how much the hotel will cost to develop, as well as the ongoing costs to run the property, market the hotel, maintain the structure, pay staff, and more.
Projections: An estimate will be given in terms of how much revenue the hotel can generate – this might include metrics such as average daily rate or occupancy.
Risks: What challenges and risks are present that could derail the project in the short or long term? This might include risks such as being in a floodzone, for example.

At the end of all this, the feasibility study will assess the overall ROI of the hotel and reach an ultimate conclusion about whether the project is recommended or not.