What is a Hotel, Restaurant, Leisure or Retail Feasibility Study

A feasibility study is the key initial tool for assisting hotel, restaurant, leisure and retail development planning.

Types of Feasibility Studies
There are two main types of feasibility study – and many people confuse the two. Architects will undertake a development feasibility study to determine what is possible on a site. The results should not be confused with a market feasibility study that determines the financial viability of a scheme based on the market(s) for which it will cater.
The results of such a study should then be used to inform the architect’s work to ensure that project budgets are reasonable.

Feasibility Study Objectives
Market feasibility studies are required to:
• raise funding,
• satisfy grant awarding bodies, where appropriate, both financially and in terms of project outputs,
• satisfy the directors that a project is viable,
• determine the optimum facility mix to maximise revenue,
• ensure that all parties agree on the key elements of a project,
• form the basis for initial market and project planning,
• in some cases, provide the argument for business closure or change of use applications/ planning appeals,
• enable third parties to value operating contracts (for example, enable museums and other visitor attractions to vale catering contracts).

What Does the Study Identify?
Hotel, restaurant, leisure and retail market feasibility studies should be completed for any capital project. It is essential that they weigh up all of the market information available dispassionately and relate the findings in potential revenue estimates. These estimates should show the number of units (rooms, meals, memberships etc.) estimated to be sold and the expected tariffs to be achieved, resulting in estimates of revenue and project outputs.

Factors Considered
The information used to form the base for the above assumptions should include the:
• location and visibility of the proposed facilities in respect of the key sources of demand,
• existing and known future competitors, including possible substitutes,
• current and forecast levels of demand and market trends – taking into account known levels of current demand, latent demand, frustrated demand. This data may include information in the public domain, competitor research, market surveys and demographic analysis.
• impact of non-direct but influencing changes in the competitive environment.

Seasonality factors should also be taken into account showing when demand is likely to be highest and lowest – viability can be greatly different if a business opens at the end or start of a trading season.

End Products
Estimates of the project outputs will enable the study to identify the optimum facility mix and also determine the costs of the operation: costs of sales, staffing costs, marketing expenditure, maintenance, insurance etc.

The end results therefore should be statements of revenue and expenditure for the first five years of the project, clearly showing the links between the markets and the forecasts. From these statements will then follow balance sheet and cashflow forecasts, and estimates of project value upon completion.