Want to build a hotel? Here’s what it takes
So you want to build a hotel?
In 2019, more than 200,000 new hotel rooms were under construction across the U.S., representing a 7 percent increase year over year, according to Lodging Econometrics.
Those projects ran the gamut from self-service to luxury and everything in between.
So with all that construction going on, it must not be too hard to do, right? Wrong.
While many hotels are built each year, the number that becomes successful at good occupancy rates are much lower.
So where to start?
Location. Location. Location.
Sure you’ve heard it before. But this time it’s really important. Maybe you’ve found a great section of town that’s screaming for a hotel. There’s a lot of car traffic, tourists and retail. What could go wrong? A lot, according to experts. It’s important to consider your competition in the hotel space and what do you expect your return to be?
Solution: Building a successful hotel in a location is more than the ambiance. A great first step would be checking with the local zoning office to ensure the concept you’re considering can be built on the land. In addition, you will want to understand the barriers to entry for competitors or another new build. Consider consulting these topics with a professional hotelier like Naples Hotel Group.
Know Your Audience
You may go into a project thinking I want a hotel to be like “this.” But in reality the hotel that will be successful is a completely different concept. While it may seem logical that a bustling city center would benefit from a business-traveler focused hotel you may be missing out on the nearby Universities that have a need for more extended stay accommodations for student’s families.
Solution: Knowing your proximity to demand generators is a game changer. You should be able to determine your target market, Determine the target market and create personas based on the segments of that market. Are they business travelers from the midwest, or sports enthusiasts catching their team play? Knowing those audiences can help you make the right choice in type of hotel to build.
Find the right construction managers and builders for a job is just one aspect of making sure your project is a success. You’ll need to develop a team of people with a varied set of disciplines to make sure you are considering all facets of the project.
Solution: Work with people who have experience with hotels, like your general contractor and architect. This is especially true if you are working with a franchise. Not only do you have to manage all the disciplines and local government, but you also have to coordinate with the franchise on their approval system to ensure it meets their standards. It will help save you money working with experienced companies so you don’t have to backtrack at all during the project.
Make sure the hotel project you decide on and your expected return are aligned. It makes no sense to build a high-end luxury hotel off a busy interstate and expect a 10 percent return. How much can you stand to lose the first year? And what’s a realistic amount you can expect to get from your project. Factor in a 12-15 month timeline for construction, along with marketing and opening, so you can know how long it may take to see a return.
Solution: Make sure the deal makes sense financially. You must factor in the cost of land, the hard construction, and also the furniture and fixtures. And be sure to create a realistic budget of soft costs like design and engineering fees, along with permitting and impact fees due to the government.
Interested in building a hotel? Let's talk!