Hotel Feasibility Study

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October 4, 2017
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Hotel Feasibility Study in Africa

 

Hotel development in Africa is currently experiencing a boom, with investments in hotel properties ranging from USD150 000 per key for a midscale property, to USD350 000 per key for a four/five-star property. Luxury properties can cost up to USD450 000 per key. In addition, hotel owners are responsible for assuming all the financial and operational risks, as most hotels operated by international management companies are operated through management agreements.

Considering the high levels of investment involved and the hotel operating models that are prevalent, it is interesting to note that conducting a hotel feasibility study is not a first step in many developments undertaken. Many investors have a “build it and they will come” approach to hotel development, which has resulted in many white elephant developments across the continent, or assets in distress which are either sold or liquidated.

A hotel feasibility study is instrumental in determining the available opportunity in the market for a new hotel development. Key areas of focus include undertaking:

  • A site assessment, in order to determine the strengths and weaknesses of the proposed hotel’s location.
  • An assessment of the hotel market to understand performance and key market segments.
  • A demand analysis to understand the hotel consumption trends of key market segments.
  • A concept development, including size and positioning.
  • A financial assessment, in order to determine the opportunity available in the market.

A hotel feasibility study undertaken by a reputable consulting company provides strategic direction for a developer when deciding whether to take a hotel project forward… or not. One of the most valuable outputs from a hotel feasibility study could be a decision to not take the project forward. Although difficult for many investors to accept, this can be the best option, particularly in markets that are over supplied or stagnating. A hotel feasibility study can therefore assist in optimising market opportunity, in order to maximise the return on investment, or alternatively, save investors a lot of money where projects are too risky. Banks are also increasingly more cautious when funding hotel projects and as such, place a greater emphasis on a hotel feasibility that is bankable and accepted by the banks. Many banks do not have in-house hospitality expertise and as such, place significant importance on the hotel feasibility study being done by a credible hospitality consulting firm or individual.

For any information relating to conducting a hotel feasibility study, please contact HTI Consulting. HTI Consulting is a hospitality consulting firm that has extensive experience across the African continent. Led by Wayne Troughton, the company has been operational for nearly 15 years. The company has undertaken over 450 assignments in over 42 countries in Africa. Last year, HTI Consulting conducted around 25 hotel feasibility studies. Our clients include large international operators and third-party operators, as well as local, regional, and global investors seeking to capitalise on the opportunity available within the under-developed African market. HTI Consulting has a team that is able to provide global insights at a local level.