The hotel business carries many advantages and pitfalls at the same time, which should be known and taken into account in order to avoid material losses before starting an investment. If you correctly foresee all the factors, then the hotel will bring a stable profit.
However, before starting a business, you should weigh the pros, cons and risks of this industry.
Advantages of investing in the hotel business:
- Fast payback. In the real estate investment market, it is 7-15 years;
- Capitalization growth. A successful hotel rises in value like a piece of real estate;
- Image. The owners of the hotels and restaurants sometimes use their hotels as a place for business meetings.
Disadvantages of investing in the hotel business:
- Capital intensity. A profitable hotel (and this is from 50 rooms or more with a restaurant) requires investments over 3 million USD and higher.
- Lack of qualified managers on the labor market in Ukraine. Most of them are already working abroad. The market of management companies is also poorly represented. There are less than 5 firms in Ukraine today, while there are tens of thousands of them in the world.
It is worth noting that the above factors can be nullified by competently drawing up a business plan, calculating the budget and reasonably approaching the selection of employees.
The main risks in the hotel business
When entering any business, it is necessary to “know in person” all the risks in order to be ready to resolve possible problems. Among the risks in the hotel business:
- The unstable political situation in the country, which influences tourism. If the hotel is aimed at foreigners, this risk should be taken into account in business planning.
- Falling prices for commercial real estate. Ukraine in its history has already experienced financial crises 4 times, which led to a fall in real estate prices. Those who bought and invested at the peak of value per m2, but launched the hotel or sold it after the fall, suffered.
- Premature need for renovation and rebranding. Poor management can cause the hotel to “wear out” before the estimated depreciation period and this will require unexpected renovation costs or the hotel's reputation will be damaged by reviews and in general, which will require rebranding.
The main stages of opening a hotel
- Development of the concept and business model of the hotel. At this stage, market research is carried out, the concept of the hotel is developed, technology for design is building. An architectural sketch is also created and a financial model is formed.
- Project design and construction support. This stage includes pre-project, design and construction and installation works. It also includes a complete set-up of the future hotel.
- Preparing the hotel for operation. Hotel launch. At this stage, the staff and sales department, financial and legal departments, the marketing and PR part of the team are formed, which ensure the smooth operation of the facility during launch and further operation.
Ukrainian realities: new opportunities
Of course, opening a hotel in Ukraine has its own specifics. Amid the coronavirus pandemic, many entrepreneurs have shelved the idea of opening a hotel. However, despite the quarantine, new facilities continue to open in Ukraine. In particular, in December 2020, the Ribas Karpaty hotel was opened in Bukovel. It is in active demand, therefore, people have not stopped going on vacation, actively reviving domestic tourism. On the contrary, the situation with the closure of borders in most countries now gives Ukrainian entrepreneurs an opportunity to show a new level of hotel service in Ukraine.
For more detailed advice on opening a hotel, please contact Ribas Hotels Group, which specializes in hotel property management, marketing and consulting.
More details at the link about investments in hotel real estate.
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