The market and financial feasibility study is an essential first step in the development process.

There are five main reasons for carrying out a feasibility study for a hotel project:

a) for the benefit of the promoter, to ensure their full understanding of the risks and rewards of the project;

b) to determine the most appropriate facility provision for a given site and market;

c) to brief the architect as to what the market requires in terms of the built environment;

d) to attract the attention of an operator and to form the basis for contract negotiation; and

e) to support submissions to debt and equity providers.

In general terms, the output of a feasibility study is information, conclusions and recommendations on:

• the current and projected future economic, political and social environment in which the proposed hotel (or other hospitality facility) will operate;
• the location of the project, and the strengths and weaknesses of the site;
• the current and projected future market environment in the project location, with a supply and demand analysis;
• a recommended product concept and market positioning, specifying an appropriate number and type of guest rooms and other facilities;
• operating factors of relevance, including aspects of management and marketing of the property;
• projections of revenue, cost, profit and annual cash flow, and a calculation of the resultant returns on investment.