HVS Monday Musings: Hotel Feasibility Study will Become Critical in the COVID era

By Mandeep S Lamba - MRICS, President (South Asia), New Delhi and Dipti Mohan - Associate Vice President – Research, New Delhi and Akash Datta - Senior Vice President - Consulting & Valuation, New Delhi

16 November 2020
  • HVS Monday Musings: Hotel Feasibility Study will Become Critical in the COVID eraHVS Monday Musings: Hotel Feasibility Study will Become Critical in the COVID era — Photo: HVS

Mandeep S Lamba
Mandeep S Lamba
Dipti  Mohan
Dipti Mohan
Akash  Datta
Akash Datta

COVID-19 has dramatically changed every aspect of life as we knew it, including the way we conduct our business. Though demand will be subdued for the near to medium term, we expect the industry to regain its 2019 glory in the next 2-3 years, making this an opportune time to invest in hotels. However, with the rapidly evolving consumer behaviour and demand fundamentals, it is imperative for investors to be more cautious and meticulous while evaluating their investment decisions, which makes a professionally prepared feasibility study more critical than ever before.

So, what is a feasibility study? As the name suggests, a feasibility study is a top-down approach that helps potential owners and investors to determine the economic viability of a hotel project based on the location, the underlying market conditions, demand-supply dynamics, and the planned investment. It also recommends the optimal development and brand strategy for the proposed hotel, making it an essential first step of any hotel business & development plan.

Hotels are very different from the other real estate asset classes especially with regards to their ability to generate revenue. Residential projects generate revenue immediately on sale, while office & retail spaces generate annuity-based rentals. Hotels, meanwhile, offer a perishable product generating revenue on a daily basis. It is therefore imperative to develop the right product with the right positioning for the location by conducting a detailed feasibility study and following it to the tee.

There have been several cases in the past, where hotel projects have been developed without taking into account the demand-supply dynamics of the micro-market, project costs were not estimated correctly and the timelines were not conformed strictly, resulting in overspending and overbuilding, thus, making them unprofitable. Hence, before investing millions of Rupees of expensive capital, it is prudent to spend an insignificant fraction of the sum, often less than 0.01%, on Feasibility and ROI Studies for a hotel or a mixed-use project to help determine the economic viability of the project and iron out the flaws, if any. Moreover, incorporating the learnings from COVID in the financial and design plans for hotels, and building efficiently designed hotels at the right cost and the right leverage is going to become critical going forward.

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Mandeep S Lamba

Mandeep S. Lamba, President – South Asia, oversees the HVS practice in South Asia. Mandeep has spent over 30 years in the hospitality industry having worked with International Hotel Companies such as Choice Hotels, IHG and Radisson Hotels before becoming President for ITC Fortune Hotels in 2001. Having successfully built the Fortune brand in India’s mid-scale hospitality sector, Mandeep ventured into an entrepreneurial stint for over 8 years, setting up JV companies with Dawnay Day Group UK and Onyx Hospitality Thailand before joining JLL in 2014, as Managing Director, Hotels & Hospitality Group – South Asia. An established industry leader, Mandeep has won several awards and recognitions for his accomplishments. Recently, he was featured in the Hotelier India Power List of the most respected hoteliers in India for the second year in a row. Contact Mandeep at +91 981 1306 161 or mlamba@hvs.com.

Dipti Mohan

Dipti Mohan, Associate Vice President – Research with HVS South Asia, is a seasoned knowledge professional with extensive experience in research-based content creation. She has authored several ‘point of view’ documents such as thought leadership reports, expert opinion articles, white papers and research reports. Contact Dipti at dmohan@hvs.com.

Akash Datta

Akash Datta, HVS Senior Vice President - Consulting and Valuation, leads consulting engagements, encompassing market studies, feasibility studies, strategic planning, valuation, and forecasting. Akash has spent nearly 13 years in the hospitality industry having successfully worked with International Hotel and Consulting firms such as Hilton, JLL and HVS in South Asia and the Middle East. In 2005, Akash started his Consulting career with HVS as an analyst following which he undertook his MBA in International Hospitality Management with concentration in Real Estate Finance from IMHI ESSEC in Paris, France. Known for his industry insights, Akash works with leading companies, private clients, industry groups, and global networks. Contact Akash at +91 989 9517 404 or adatta@hvs.com.