Hotel Feasibility Study: What It Should Include, and How to Read It as an Owner
Published
Many hotel and serviced apartment projects start with one question: “How much will the project earn?” The feasibility study is the document that is supposed to answer it. But a study is only useful if its assumptions are clear and can be tested.
This article does not offer figures or a ready-made template, because the numbers for a hotel in north Jeddah do not apply to a hotel in Jazan or Najran. Instead, it explains what the study should include, and the questions that reveal its strengths or weaknesses.
Why is the “market average” not enough?
What most weakens feasibility studies is reliance on general averages: the city's average occupancy or the area's average rate. The problem is that a hotel does not compete with the whole city; it competes with a specific set of nearby properties targeting the same guest.
That is why a serious study starts by identifying the direct competitors and the demand segments before any figure.
The core components of a feasibility study
1. Site analysis
- Ease of access from main roads and the airport.
- Demand generators around the site: hospitals, universities, business centres, exhibitions, beaches, shopping centres.
- The building's visibility, parking and the character of the neighbourhood.
- Regulatory restrictions on the use of the property.
2. Demand study
- Who will stay at the hotel? Families, business travellers, visitors of patients, students, event visitors, Umrah pilgrims in transit.
- What brings each segment? And on which days and in which months?
- What is the expected length of stay for each segment? And do hotel rooms or serviced apartments suit it better?
3. Supply and competition analysis
- Existing nearby properties, their categories and their number of units.
- Projects under construction or announced that will add new supply.
- How these properties appear on booking platforms, and what guests say about them in reviews.
4. Product definition
Based on demand and competition: what type of property (a hotel or serviced apartments)? What category? What unit mix? And which facilities justify its rate?
The decision here directly affects licensing and classification requirements; see our guide to hospitality facility licensing and classification.
5. Revenue projections
These are usually built on three interlinked assumptions:
| Assumption | What it measures | The question you should ask |
|---|---|---|
| Occupancy | The share of available rooms that are sold | What is the source of this assumption? And does it vary between seasons and days of the week? |
| Average daily rate (ADR) | Room revenue ÷ rooms sold | Is it a net rate after platform commissions, or a published rate? |
| Time to stabilisation | How many months a new hotel needs to reach its target performance | Did the study assume the hotel performs at full level from the first month? |
To learn about these indicators and how they are calculated, see hotel performance indicators.
6. Costs
- Development or fit-out costs: construction or conversion, furniture and equipment, technology systems.
- Pre-opening costs: recruitment, training, marketing and licences.
- Operating costs: salaries, energy, maintenance, cleaning, commissions, systems, insurance and statutory fees.
- Replacement reserve: a periodic amount for renewing furniture and equipment.
We broke down the operating line items in our article Hotel Operating Costs.
7. Operating model
The owner's return differs fundamentally between self-operation, a management contract, a lease and a franchise. The study should state which model it assumed, and its effect on the net amount that reaches the owner. Compare the models in Management, Lease or Franchise.
8. Scenarios and sensitivity analysis
A study that presents a single scenario assumes everything will go as planned. Ask for at least three scenarios: conservative, base and optimistic. And ask: what happens if occupancy or the rate falls below the assumption? And at what point does the project stop being viable?
Questions that expose a weak study
- Who are the direct competitors the figures were based on? And can I verify them?
- Is the projected revenue net of booking channel commissions?
- Do the assumptions vary between seasons and days of the week?
- Was the stabilisation period accounted for?
- Were licensing and renewal fees and regulatory obligations accounted for?
- Is there a reserve for replacing furniture and equipment?
- What operating model is assumed? And what fees come with it?
- What would make the project unviable?
Common mistakes
- Copying the figures of a hotel in another city or another neighbourhood.
- Confusing the published rate with the net rate.
- Ignoring competing projects that will open before or alongside yours.
- Assuming constant occupancy throughout the year.
- Presenting the study as a guarantee of return; a study is an estimate based on assumptions, not a promise.
Frequently asked questions
Is there a ready-made template for a hotel feasibility study?
Templates are useful for organising the line items, but the figures in them must be built on your site, your competitors and your demand segments. A template filled with someone else's numbers can be more dangerous than having none.
What is the difference between a feasibility study for a hotel and one for serviced apartments?
They usually differ in segment mix, length of stay, and the type of services and facilities, and therefore in revenue and cost assumptions. The property's classification and its regulatory requirements also differ.
Who prepares the feasibility study?
It can be prepared by a specialist consultancy, or an operator's expertise can be drawn on to test the operating assumptions. What matters is that the assumptions are written down and their sources are clear.
Does a good study guarantee the project's success?
No. A study reduces risk and clarifies assumptions, but the outcome depends on execution, operation and market changes.
Next step
If you are considering a hospitality project and would like to discuss its operating assumptions, you can contact the Mirada team.