Before committing investment to a project, an initial Feasibility Study is necessary to examine the viability of a development, renovation or acquisition. This is often required by both lenders and investors to finance the project.
I. PREPARE A MARKET STUDY
- This looks in detail at existing supply and demand conditions, including local, regional and international visitor segments; demand generators, target markets and factors affecting potential growth.
- An additional element will include assessment of existing and future competitors (neighbouring hotels, global brands and competing operators and rival destinations) to determine the occupancy rate, average room rates and RevPAR that can be achieved given market conditions.
- A SWOT analysis will highlight strengths, weaknesses, opportunities and threats at a glance.
II. DEVELOP A CONCEPT STUDY
- Evaluation of site potential with reference to hotel and/or mixed use elements in order to recommend commercial best-use.
- For a hotel development, the study will detail preferred options for star rating, number and size of rooms/suites, food and beverage outlets, meeting and event facilities, health club and spa opportunities and branding and operator propositions.
III. INVESTMENT APPRAISAL
- This will include a ten-year profit and loss projection based upon expected revenues given occupancy assumptions, benchmark pricing and market cost and profit ratios.
- A preliminary CAPEX budget based on parametric development cost estimates will be provided.
- A simple Return on Investment calculation using discounted cash flow analysis and an IRR calculation will show the maximum supportable investment.
4 – 6 weeks