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Hotel Feasibility Study

Hotel Feasibility Study: Planning a New Hotel or Resort (Part 1)

For more than thirteen years we have a career in property and work in several major hotels in Indonesia, we have helped many customers in planning and investing in the property business. The name of Mahkota Property is familiar in the property industry because it has seen many times in Mahkota Property doing a feasibility study. We’ve also seen how many would-be hoteliers and property businesses assume that their vision will succeed, without doing any important research on building a hotel business that will be consistently profitable and competitive. In this article, we look at the steps needed to conduct an effective hotel feasibility study.

What is the feasibility study of the hotel and do you need it?

As the name implies, a feasibility study investigates your hotel proposal to see if it is worth it as a sustainable business model and whether the business is profitable. This is done by considering its viability relating to market, location, cost, and financing. The feasibility study is the cornerstone of your preparation for a new or renovated hotel. This shows investors how they will receive their return on investment (ROI). Therefore, it is not advisable to proceed without undertaking this important stage of investigation and illumination.

Below you will find the basic plan and approach of a team of experts from the company us to collect a comprehensive validation report, based on financial and market analysis, to determine the feasibility of a new hospitality project or lodging concept.

A key step of an effective hotel feasibility study

1.Location analysis

Studying the proposed location for your hotel or resort aims to answer a number of important questions for the success of your hotel project. What makes the location something interesting? Is there enough manpower supply and quality? What resources can be expected? Is the hotel supported by an easy transportation network? What are the potential risks and benefits associated with the local area?

2. Total cost calculation

This includes development and architecture costs before opening the hotel. Then there are the operating expenses that the hotel will incur, including licenses, taxes, equipment, furniture, insurance, human resources, supplies, electricity, water and more.

3. Investigation of hotel offers and requests

It involves the analysis of all hotels in the local area, especially their competitiveness. Information can be found easily in various places and travel guides, travel agents and travel research groups. Knowing hotel offers and requests in your proposed location helps us project your hotel occupancy rate and rate, one of the key elements in building its economic feasibility.

4. Room rate and occupancy rate throughout the year

Once you’ve set your own hotel deals and hotel demand and competitiveness including the projected operating costs, desired ROI, and most importantly comparing with your competitor’s hotel. Projected year-round demand is used for determining demand to run in making pricing decisions.

5. Assign and project the hotel’s revenue source

The main revenue sources for your hotel will come from rooms, food and drinks and events like conferences and meetings. By using your projections for the average room rate and occupancy rate throughout the year, you can project sales from various sources of income, including food and beverages.

6. ROI projection Feasibility study of the Hotel

One of the most important parts of your hotel feasibility study is ROI projection. ROI works by using a number of metrics, including internal rate of return (IRR), net present value (NPV), debt coverage ratio and discounted cash flow (DCF), and others. It helps indicate whether the return on investment is sufficient to continue the business plan and if you need to find financing elsewhere.

If so, will this capital lender be satisfied with the projected ROI? Otherwise, the proposed hotel may be abandoned or can be changed to make the return on investment attractive enough to continue, such as changing location, room rate and reducing costs.

As you can see, a hotel feasibility study is very wide-reaching. It gives you and all stakeholders like other investors to get a clearer picture of the required costs, whether the return on investment is as expected and whether it can help in determining how to proceed. The feasibility study is largely seen as an indispensable step for all proposals hotel  and accompanying a business plan to form a successful blueprint.

Interested in making a hotel feasibility study?

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