Hotel Feasibility Study Methodology

Presented on 24th April, 2020 by Gwamaka Jankey, PMI-CAPM

A hotel feasibility study is generally required by the mortgage lender or investor before a developer or organi
This overview highlights the major components of a hotel feasibility study that should be analyzed as part of d

1. AREA, DEMOGRAPHIC, AND NEIGHBORHOOD ANALYSIS

The area, demographic, and neighborhood analysis evaluates the local economy surrounding the proposed ho

Population trends: What is the area population and is the number increasing or decreasing?

Household growth:  How large is the typical household?

Household economics: What is the unemployment rate?  What is the median income? How much disposable

Area economics: Which large corporations are based in the area? Who is growing or shrinking? What is office

Attractions: Are there tourist attractions in the area?  What are the demand generators for leisure and group

Area transportation: How is access to airports, and local highways, and rail stations compared to competition
A neighborhood analysis of nearby commercial and tourist establishments is important since many successful

2. SITE REVIEW
The site review evaluates the subject parcel’s size, access and visibility, topography, availability of utilities, an
Site: Is the site large enough to support the planned hotel?  Is there room for future expansions?

Amenities: Are there nearby amenities that would complement the proposed project?

Governmental impacts:  restrictions, environmental regulations and other factors affect the subject property

3. PROPOSED DEVELOPMENT RECOMMENDATIONS AND COSTS

The consultant will review plans for the facility, the scope of the development and projected costs to make re
 The following are some questions the study should answer:
Physical plant information: Have any architectural plans been developed?

Facility size:  How many food and beverage outlets should be developed within the hotel?

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Branding: Should the hotel have a franchise affiliation or be an independent property?

4. MARKET ANALYSIS

Hotel competitors:  How many competitors are in the market and to what degree are they competitive in ter
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Recent hotel openings:  How many hotels have opened in recent years and how have they impacted the mar
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Potential hotel openings:  How many hotel projects are in the works?  What types of hotels will they be?  Ho

Market segmentation and market penetration: What is the market segmentation and penetration of each co
 Projections:  Based on the current market situation, how will the subject likely perform in terms of occupancy

5. PROPOSED DEVELOPMENT SITES

1 floors and several cattages

2   Public Campsite

3   Swimming pools

4   Jacoozes

5   Sona Rooms (Heat Rooms)

6   Gym

7   Bar (pool table available, table tennis, karaoke stage)

8   Restaurant

9   Lounge

10   Conference Room

11   Office Rooms

12   Staffs Living Rooms

13 Play grounds (Basketball)

14 Landing Zone (Chopper)
15   Landing Zone for Balloon

16   Car Parking

17   Resting area at the View Point

18   Drivers/Guide Cottages

19   Outside kitchen for campers

20 Washrooms for campers

21 Guestrooms
22 Number of restaurants
23 Lounges,
24 Amount of meeting space
25 Recreational and aquatic features
26 Retail shops
27 Other amenities to include.
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FINANCIAL ANALYSIS
The financial analysis estimates a property’s capacity to generate income and makes financial projections for
Estimate the potential gross revenues for the subject property based upon an examination of the prior opera
Analyze departmental, undistributed, and fixed expenses, and project appropriate amounts in each category.
Project the resultant net operating income (cash flow before debt service) over an appropriate holding period

HOTEL FEASIBILITY ANALYSIS

The economic value of a hotel is calculated through a discounted cash flow analysis or a direct capitalization a
COMPARISON OF VALUE CREATED TO PROJECTED COSTS
The key component of a feasibility study is to determine if the projected value created as shown from the dis
Conclusion: The hotel feasibility study requires analysis and expertise beyond other types of commercial real

info@jumbotours.co.tz

Hello Mr. Gwamaka, I hope this email finds you well, We got your text from Ms Mariam and h

1: Hotel Name; The Ridge Safari Hotel

2: Owner; Jumbo Tours and Safaris Limited
3: Region; Manyara Region
4: Location; Mto wa Mbu
5: Type; Budget,Mid-range and Luxury
6: Must be a safari hotel (Tourism industry)
7: Must have two floors and several cattages (will confirm the number)
8: Public Campsite
9: Swimming pools
10: Jacoozes
11: Sona Rooms (Heat Rooms)
12: Gym
13: Bar (pool table available, table tennis, karaoke stage)
14: Restaurant
15: Lounge
16: Conference Room
17: Office Rooms
18: Staffs Living Rooms
19: Play grounds ( Basketball)
20: Landing Zone (Chopper)
21: Landing Zone for Balloon
22: Car Parking
23: Resting area at the View Point (Lake,City and Manyara National Park)

camper
a person who spends a holiday in a tent or holiday camp.
24: Drivers/Guide Cottages
25: Outside kitchen for campers
26: Washrooms for campers,
ore a developer or organization is able to move forward with constructing a new hotel. Typically completed by an independent third-party
d be analyzed as part of determining the potential success of a hotel.

ounding the proposed hotel. The area analysis focuses on the social, economic, governmental, and environmental forces that influence th

e? How much disposable income do area households have?

shrinking? What is office vacancy rate?

ors for leisure and group travelers?

compared to competition?
nt since many successful hotel projects are proposed in areas with complementary real estate uses. Successful hotels are developed in ne

availability of utilities, and other site-related attributes necessary for a successful hotel project. The hotel’s proximity to demand generato
expansions?

ffect the subject property?

rojected costs to make recommendations for the proposed hotel. The scope of recommendations includes the number of
e they competitive in terms of amenity offerings, affordability, etc.?  

e they impacted the market?

f hotels will they be?  How many rooms will they have?  What is their projected impact on the current supply and demand in the market?

nd penetration of each competitor in the market?  The consultant will review all market segments, including corporate, leisure, group, and
rm in terms of occupancy, and revenue per available room?   What are its potential penetration rates and market segmentation?
 financial projections for the property. Estimating annual operating results for the subject property involves an analysis of the subject’s sco
nation of the prior operating history of the subject property (if available), operating history of comparable properties in the subject marke
mounts in each category.
ppropriate holding period.

or a direct capitalization analysis.

ed as shown from the discounted cash flow analysis equals or exceeds the development cost for the proposed project. A feasibility study s
types of commercial real estate. A hotel or resort feasibility study requires a thorough market analysis involving a study of the economic a

rom Ms Mariam and here are some info that you need.
ndependent third-party consultant who specializes in analyzing hotel projects, a feasibility study determines whether a proposed hotel de

forces that influence the performance and valuation of a hotel property. Demographic information, including population, households, inc

tels are developed in neighborhoods where overnight guests are already traveling and looking for places to stay.

ity to demand generators is an important consideration since hotel guests appreciate convenient access from area highways, employers, a
demand in the market?

rate, leisure, group, and contract markets. Hotels in the area that garner the largest share of the most relevant market segments will be th
segmentation?
alysis of the subject’s scope and characteristics compared with comparable properties and industry standards. The general steps include th
ties in the subject market area and on a national basis, and an analysis of industry trends.

ect. A feasibility study should present the projected value created after a detailed analysis of the factors that determine success of the pro
study of the economic and demographic factors as well as a review of the hotel market. The study also requires a complete financial analy
her a proposed hotel development is economically feasible and if the value of the proposed project equals or exceeds the development co

pulation, households, income levels, employment levels, etc., should be reviewed in detail to calculate the number of people and potentia

a highways, employers, and their destinations. The following are some questions the study should answer:
arket segments will be the subject property’s main competitors.
 general steps include the following:

rmine success of the proposed properties. In some cases, detailed costs will not be available, and this conclusion will be determined after
complete financial analysis, which looks at various revenue and expense categories. The purpose of the feasibility study is to provide hone
eeds the development costs when completed and operational. The hotel feasibility study will analyze revenues, expenses, and net income

of people and potential customers who live within the local and regional areas. The following are some questions the study should answe
will be determined after the client has cost estimates performed by building contractors and architects. In other cases, the client has estim
study is to provide honest and reliable information to the client to help them decide whether to develop their proposed hotel project.
penses, and net income to determine the value of the proposed project compared to its projected development costs.

the study should answer:

ases, the client has estimates of construction costs, and the feasibility study will present these estimates and compare the value created to
posed hotel project.
pare the value created to the development costs to determine if the project is feasible. The most viable projects, which have the greatest i
hich have the greatest investor appeal, are those in which the value created is greater than the development costs for the proposal. Even
s for the proposal. Even if the value created is less than the development costs, the project may still be feasible if the project can attract m
the project can attract municipal incentives such as a tax abatement or capital assistance to the developer in terms of infrastructure. This w
s of infrastructure. This would allow for either improved financial projections or for lower development costs.