Hotels are among the most demanding projects on the property market. They consume vast capital, and success depends on decisions made before the foundations even break ground. Planning a hotel investment is not a task where you can rely on intuition and optimism – here every wrong decision can cost millions.
And yet, every year properties enter the market that fight for survival from their first operating day. The reason usually does not lie in service, marketing or the kitchen. It lies much earlier – in the stage the investor treats as a formality, and which decides everything.
Why is a hotel an investment unlike any other?
Most property projects can be summed up in a simple scheme: build, lease or sell, earn. A hotel works differently. It is a hybrid of real estate and an ongoing service business – the building is only half the story. The other half is the daily operation, which must generate revenue under variable demand, seasonality and merciless competition.
This duality means a hotel project combines risks rarely found together: property risks (location, construction costs, financing), operational risks (staff, energy, management quality), market risks (trends, new competition) and macroeconomic risks (inflation, the cost of credit). Combining these variables with the high expectations of the investor, the bank and the operator means a hotel investment requires a completely different approach to planning than a classic commercial property investment.
One of the most common mistakes – falling in love with your own concept.
In advisory practice the same scenario recurs. The investor – often experienced in other industries – has an idea. A plot in a beautiful location. A vision of a property that “in this location simply must succeed”. Sometimes an architect and a brand name already.
And then they commission a hotel feasibility study – not to genuinely check whether the project makes sense, but to obtain a document confirming what they already believe. Because the bank requires it, because the partners want to see paper.
An example from the Polish market: an investor commissioned a study for a project in a location they considered a dream. The concept was interesting – a unique segment, a polished positioning. The problem was that none of the strengths could generate the RevPAR needed to achieve a profit in that particular place.
The analysis covered macroeconomic trends, the location's potential, investment costs, the demand forecast, occupancy, ADR, the financial forecast and the competition analysis. The conclusions were unambiguous: a negative return on investment. Not because of a flaw in the concept, but because of a fundamental mismatch between the project's ambitions and what the location can realistically bear.
The investor's reaction was typical – incomprehension and resistance. The answer is uncomfortable but simple: in hospitality, even the best product cannot hold up in a poor location.
What does a sound feasibility study really cover?
A professional study for a hotel project is a multi-faceted decision-making analysis that covers at least:
- Analysis of the macro environment – tourism trends, demographics, infrastructure development plans
- Demand analysis – guest segments, seasonality, consumer behaviour
- Location analysis – accessibility, exposure, demand generators, the competitive environment
- Competition analysis – existing properties and, crucially, planned investments that will hit the market at the same time
- Product concept – segment, category, room structure, additional functions
- Operational and financial forecasts – projected occupancy, average daily rate, revenue per available room, gross operating profit per room, investment costs, internal rate of return, net present value and the payback period,
- Recommendations – including a possible recommendation to abandon the project.
That last point is the hardest for many investors to accept. A good feasibility study is able to say “no” – and that is its greatest value. Halting a project at the analysis stage costs a few dozen thousand złoty. Halting it after construction has begun – tens of millions.
Why does location decide everything?
In no other property sector does location have such a devastating impact on the financial result as in hospitality. A warehouse can be relocated in operational terms. An office building has fairly predictable demand. A hotel, however, is bound to its location for the entire life of the investment – usually 25–40 years.
Location answers the questions that shape the whole business plan: who will come here, how much will they be willing to pay and how long will the season be. That last point is often underestimated. A property with a 9-month off-season needs radically higher in-season rates to make the project profitable – and those rates must be backed by real demand, not wishful thinking.
A hotel advisor on the team – an investment, not a cost.
One of the most common mistakes in planning a hotel investment is the absence of an experienced hotel advisor on the development team from the very start. The architect designs, the contractor builds, the bank finances, the operator manages. But who makes sure the whole ecosystem heads towards a genuinely profitable business, rather than a beautiful building that generates no return?
A hotel advisor brought in at an early stage verifies the location's potential before the plot is even bought, matches the concept to real demand segments, consults the functional programme with the architect, prepares the feasibility study and helps select the operator. It is a role that reduces the risk of fundamental mistakes – mistakes that, a few years after the property is delivered, may be impossible to fix without enormous outlays.
Planning a hotel investment is a long game.
A hotel is a project with a horizon of several decades. Decisions made in the first months of planning – location, segment, concept, room structure, operating partner – will work for or against the financial result for decades to come. In this game there is no room for sentiment or visions detached from data.
The best hotel investors treat the feasibility study not as a formality required by the bank, but as a tool that saves them from costly mistakes. They bring a hotel advisor onto the team before they sign the notarial deed for the plot. They are able to accept the answer “no” and change the concept, rather than clinging to an idea that has no chance.
A hotel investment can deliver a very attractive return – but only when the fundamentals are real. That reduces the risk of putting money into a “castle made of sand”.
