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Feasibility Study

Why a feasibility study of your envisioned project is a key component to the commercial success of your hospitality development

Skipping a feasibility study before embarking on a hotel project might seem tempting to save time and expenses, but skipping it is akin to taking a blind leap, or setting sail without a map, ending up lost at sea. The long-term risks may far outweigh the benefits.

With a positive result of your feasibility study, you will rest assured …

  • that your hotel project is viable and sustainable;
  • that you have a good location, location, location!!!;
  • that it shows the commercial viability of your project with a good return on investment (IRR) giving the financial institutions a comfortable basis to grant required loan amount;
  • that there is sufficient demand in the area to fill your rooms consistently and you do not invest into an oversaturated market or wrong market segment;
  • that you know who and how strong or weak your competition is;
  • that you differentiate your property with a great Unique Selling Proposition.

Despite Feasibility Study being time-consuming and initially an additional expense, it remains an indispensable tool that maximizes the likelihood of success by helping to mitigate risks and providing a comprehensive understanding of the market dynamics, financial implications, potential risks and consequences, and operational requirements involved in launching and operating a new hotel property.

It is also important to know that many banks make their decisions to grant loans on a thorough feasibility study that is prepared by trusted ‘bankable’ hotel consultancies. As it is a key component to your success, it is therefore mandatory for every wise and prudent investor. Make sure to address the ESG requirements by the banks!

A Feasibility Study usually contains the following chapters:

  1. Assignment and Methodology

 

  1. Site Evaluation

Assessing the proposed location for the hotel, including factors like accessibility, visibility, proximity to demand generators (such as tourist attractions, convention centres, airports, etc.), zoning regulations, and availability of public traffic connections utilities and infrastructure.

  1. Market Analysis

This involves examining the local and regional hospitality market to understand factors such as demand drivers, competitor landscape, occupancy rates, average daily rates (ADR), and trends in tourism and business travel. Add the additional step of a tour operator survey as well as future prospects and potentials; competitive surrounding.

  1. Legal and Regulatory Compliance

Ensuring that the proposed hotel development complies with all relevant legal and regulatory requirements, including building codes, zoning laws, environmental regulations, permits, licenses, and tax considerations.

  1. Operational Considerations

Assessing the operational aspects of the hotel, including staffing requirements, management structure, brand affiliation (if any), service standards, and amenities offered to guests.

  1. Investment Cost Estimate

Estimating the total investment required for the hotel development, including land acquisition, construction costs, interior design, furnishing, pre-opening expenses, and contingency reserves.

  1. Operational Forecasts and IRR Calculations

Developing detailed financial projections to estimate the potential revenue, operating expenses, and profitability of the hotel. This may include revenue forecasts based on projected occupancy rates and average daily rates (ADR), as well as expense projections covering staffing, utilities, maintenance, marketing, and other operating costs.

  1. Risk Assessment

Identifying and evaluating potential risks and challenges that could impact the success of the hotel project, such as economic downturns, regulatory changes, competition, and unforeseen construction delays or cost overruns.

  1. Sensitivity Analysis

Conducting sensitivity analysis to evaluate how changes in key assumptions (such as occupancy rates or construction costs) would impact the financial viability of the hotel project.

  1. Conclusion and Project Recommendations

Summarizing the findings of the feasibility study and providing recommendations to stakeholders regarding the viability of proceeding with the hotel development, including any potential adjustments to the project scope, budget, or timeline.

GHS offers to conduct comprehensive and detailed research into the market demands and supplies, competition and other relevant factors affecting the sustainability of a project. We collaborate with two international ‘bankable’ consultancies in the preparation of a Feasibility Study. This is for specialization and for practical reasons which allow us to cover all hotel and development consulting needs from market research, initial feasibility through to opening.

We analyse and prepare assumptions of the financial models to help owners and decision-makers have a holistic view of the potential benefits and disadvantages, barriers and constraints as well as its benefits from a technical, financial, legal, operational, time and market standpoint, thus determine the practicality and viability of a new project and its Return on Investment / Return on Equity based on the ‘Uniform System of Accounts’ for the hotel industry.

We understand that the importance of a thorough feasibility study cannot be over-estimated as it is the foundation upon which a project plan resides and thus is a critical step prior to any significant undertaking. We therefore exercise objectivity and rationality as we prepare this study, ensuring its credibility and effectiveness which potential investors and lending institutions may base their wise decisions from.

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