Let’s say you’re planning on a business venture. Since you have a good location, you’re thinking of running a hotel business. So, going through online, you check all the basic things you need to know. One of the main questions you need to understand first is how much does it cost to build a small hotel? If you think you have the cash to spend, you may then talk to the right people to make your dream business a success.
Generally, how much does it cost to build a small hotel is about $27 million. However, you have to understand that you need to learn many things and aspects of the business first. This article will answer your questions on how much does it cost to build a small hotel and other spending categories on building one.
Expenses and Other Spending Categories
Before discussing the overall budget you need on how much does it cost to build a small hotel, you have first to understand the breakdown of your expenses. This way, you get to understand where the total amount came from. Here are a few of the spending categories you need to understand when building a small hotel.
These categories came from a recent study by Cushman & Wakefield, a popular consulting company for those who want to start a hotel business. Here are the major expenses to consider:
Land Purchase or Lease
Location is everything. Just as planning on building a hotel, you have to choose a strategic location that will attract tourists all year round. Thus, this category takes one of the biggest chunks of your expenses. Recent studies show that land cost takes about 9% of the total budget. If purchasing is not an option, many local and small hotels also opt for long-term lease.
The next expense to consider is the actual construction expense. Also known as hard costs, this includes everything from permits, materials, contractor and subcontractor bids, landscaping and garage costs, and other building projects. Aside from your land costs, this takes up a whopping 64% – 72% of your total budget. That still depends on how big you want your hotel to be the more modern and high-end, the greater the percentage and cost.
With the construction, expenses come professional fees. This spending category is dedicated to those professionals you need to work with you, for example, architects, surveyors and interior designers, engineers, etc. This accounts for 10%-18% of the total hotel budget.
Furniture, fixtures, and Equipment (FF&E)
Besides location, you also have to make sure that your hotel has is comfortable and inviting for your guests. Thus, you have to purchase the right furniture, fixture, and equipment to complement your intended hotel aesthetics—everything from beds, dining, cabinets, to your lobby carpet and chandelier fall in this category. For a more modern vibe, any tech equipment you intend to set up is also included in FF&E. The overall percentage of this category is around 8%-10%.
The operating costs consist of working capital and other pre-opening expenses. When opening a hotel, you have to consider hiring and training your hotel staff, supplies, technical services, and electric and water expenses. Though they do not take much of the overall budget, they are still as important as other bigger costs. On average, they cost 1%-4% of the total budget.
The last category to consider is the development fees. It accounts for all the development team’s expenses—for instance, travels, administrative expenses, and payroll.
Average Cost per Hotel
Based on different spending categories, here’s how much does it cost to build a small hotel, including midscale and luxury hotels:
|TYPE||Average Cost of Hotel||Average Cost Per Room|
|Midscale hotels||$16,905,000||$147,000 per room|
|Upper midscale||$20,125,000||$175,000 per room|
|Upscale hotels||$27,025,000||$235,000 per room|
|Upper upscale hotels||$47,035,000||$409,000 per room|
|Luxury hotels||$187,450,000||$1,630,000 per room|
Profiling your Hotel
Before you plan out your hotel or set aside a startup budget, try to spend some time researching. Through research, you get a clearer picture of what you want to happen, including your business venture’s strengths, weaknesses, and opportunities. You also have to profile your target audience to decide on the overall theme of your hotel.
Learning how much does it cost to build a small hotel can be very overwhelming. Although the value might be too huge, knowing where your money goes can help you prepare for your dream business. The estimated amount provided can also guide you on your overall planning. Know more about hotel businesses.