Case study 16 - Location, location, location

The client: the directorate of one of the UK's major food science research parks

Location: a site on the research park on the outskirts of a major city in the east of England. The research park includes a 320-seat auditorium that attracts a domestic and international audience. There is no accommodation facility on the park.

Project date: summer 2007

The project

In the first phase, Frank Coan, Ian Graham and Alastair Stevenson were asked to assess whether there was, in principal, a market for more hotel rooms. If the assessment was positive, we would move to the second phase, in which we would conduct field and desk research, and interview demand generators and hotel owners. This period of intensive work would generate an estimated revenue projection that would lead to a recommendation as to how many bedrooms, of what quality and what, if any, branding options are recommended.

Once the client had had an opportunity to review and comment upon these recommendations, Hotel Solutions would go on to prepare estimated profit and loss projections, estimated investment levels and cash flow estimates. The business case for proceeding with the project would be established.

The client had the option of stopping the consulting assignment at the end of each of Phase One or Phase Two. Hotel Solutions was committed to make such a recommendation if the research findings were negative.

Project scope

Our research showed that, in recent years, growth has been at an impressive 10% in total but all in the budget hotel sector. There is every reason to suggest that there is an opportunity for a new budget hotel of 100 rooms. But there is already such a hotel planned so if the client also went ahead, it would lead to city budget occupancy averaging just 68%. The client's site is weak and might achieve only 80% of fair share, which is 54% occupancy. And it could easily be lower.

The client creates but does not necessarily control 600 rooms per annum but these are for 3* hotels rather than budget hotels. The research park and other nearby demand generators do create more than 2,500 room nights (7 per night); although significant, this will not be sufficient to justify a hotel. There is no guarantee that this demand would use a hotel on site.

The research park is hoping to attract capital for the project. This would be challenging based on the findings. If as an alternative the research park provides its own capital, trading would probably be poor and probably loss-making. Is this a satisfactory outcome?

Results

HSP recommended - and the client agreed - not to proceed past Phase One because the client could not:

• confirm agreed future town and traffic planning schemes would radically improve the attractiveness of site
• commit higher levels than identified of controlled demand from existing or new sources.
• introduce significant amounts of risk equity or debt capital and warrant or guarantee returns to third-party capital

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