Short Feasibility Study For A Hotel In The Luxury Segment .
Short Feasibility Study for a HotelProject in the Luxury Segment inVienna, AustriaBachelor Thesis for Obtaining the DegreeBachelor of Business AdministrationTourism and Hospitality ManagementSubmitted to Mag. Arch. Gabriel KacerovskySandra Gramann0811537Vienna, 15 April 2011
Declaration of AuthorshipI declare that this dissertation is my own unaided work. I have not included anymaterial or data from other authors or sources, which are not acknowledged andidentified in the prescribed manner. I have read the section in the exam regulationson plagiarism and understand that such offences may lead the Examinations Boardto withhold or withdraw the award of Bachelor of Business Administration.DateSignature2
Executive SummaryIn 2010, the former headquarters of Bank Austria Creditanstalt located in the innercity of Vienna, “Am Hof 2” was acquired by Property Development GmbH. As thenew owner of the property is interested in the development of a luxury hotel,planned to be operated by a well renowned hotel brand, a feasibility study wascommissioned to be made by the author.The purpose of this paper is to investigate the opportunities and risks of operating ahigh class hotel at the designated location. In order to determine whether a feasibleoperation of such an establishment is possible, the various key factors ofcompetitive business in this particular market will be analyzed.The investor of the property has determined certain benchmarks which need to betaken into account in the planning of this project. Basically, the main factors includea certain standard of guest rooms and suites, gourmet facilities as well asrecreational areas including a representative Wellness and Spa installation.A prerequisite for a professional feasibility study is the depiction of the macroeconomic circumstances which are of importance to the project. Thecomprehensiveness and accuracy of the feasibility study submitted relies oninformation provided by the owner and acquired through extensive secondary dataresearch.Assuming that the city of Vienna’s economic and touristic outlook will develop asexpected, the proposed hotel project should achieve the success desired by theinvestor. Given the trend of economic recovery and the increased attractiveness ofVienna to high income consumer segments, the realization of the respective projectis set on solid grounds.3
Table of ContentsDeclaration of Authorship . 2Executive Summary . 31List of Abbreviations . 8Introduction. 101.12Assignment. 11Location Analysis . 122.1Macro Location . 122.1.1Economic Overview Austria . 122.1.2Location Analysis Vienna. 142.1.2.1Economic Overview. 142.1.2.2Accessibility and Transportation . 162.1.2.3Culture and Tourism. 182.1.2.4Congresses and Fairs . 202.1.2.5Reputation and Rankings . 212.1.3Summary . 222.2Micro Location “Am Hof“ . 232.2.1Visibility and Accessibility . 232.2.2Assessment of Project Site . 262.2.3Conclusion . 284
3Hotel Market Analysis . 293.1General . 293.2Hotel Market in the Five Star Segment . 313.2.1Current Hotel Supply . 313.2.2Future Hotel Supply . 323.2.3Competitive Analysis . 343.2.4Hotel Demand . 413.3456Conclusion . 42The Project . 444.1The Building. 444.2The Concept . 444.3Hotel Area Programming . 49Financial Analysis. 515.1Assumptions . 515.2Hotel Trading Estimates . 52Conclusion . 58Bibliography . 59Appendix 1 . 67Appendix 2 . 68Appendix 3 . 695
List of DiagramsDiagram 1: Central Train Station Vienna . 17Diagram 2: Schönbrunn Palace . 18Diagram 3: “Am Hof” Square . 23Diagram 4: Map - Inner City . 24Diagram 5: Map - Competitors . 34Diagram 6: Hotel Sacher Vienna . 36Diagram 7: Hotel Imperial Vienna . 37Diagram 8: Sofitel Vienna Stephansdom . 38Diagram 9: Grand Hotel Vienna . 39Diagram 10: Palais Coburg Vienna . 40Diagram 11: Banking hall – Ground floor – Main entrance . 45Diagram 12: Historic Ballroom – First floor . 476
List of ChartsChart 1 Real GDP Growth (Seasonally and Working Day-Adjusted) . 12Chart 2: Population Forecast for Vienna 2009 – 2075 (main scenario) . 15Chart 3: SWOT-Analysis – Macro Location . 22Chart 4: Assessment of project site . 26Chart 5: Hotel matrix - Suitability . 26Chart 6: Guest matrix – suitability, hotel types, guest segmentation. 27Chart 7: SWOT-Analysis – Micro Location Vienna. 28Chart 8: Development of 5-star Hotels in Vienna, 2008 - 2013 . 30Chart 9: Occupancy of 5* Hotels in Vienna from 2008 - 2010 . 42Chart 10: Total room revenue/Occupancy . 53Chart 11: Departmental costs of total revenue (%) . 55Chart 12: Annual net minimum rent . 56Chart 13: Rent/Lease agreement . 5717
List of AbbreviationsACVAustria Center ViennaECREuropean Congress of RadiologyEUEuropean UnionF&BFood & BeverageGDPGross domestic productHRHuman ResourceIAEAInternational Atomic Energy AgencyICCAInternational Congress and Convention AssociationIMFInternational Monetary FundLHWLeading Hotels of the WorldM&SMarketing & SalesMA 5Magistratsabteilung 5 (Referat Statstik und Analyse)MICEMeetings, Incentives, Conventions and EventsNOINet operating incomeNOPNet operating profitÖBBÖsterreichische Bundesbahnen (Austrian Federal Railways)OeNBÖsterreichische Nationalbank (Austrian Federal Bank)OPECOrganization of the Petroleum Exporting CountriesOSCEOrganization for Security and Co-operation EuropeRevPARRevenue per available room8
UIAUnion of International AssociationsUNESCOUnited Nations Educational, Scientific and Cultural OrganizationUNIDOUnited Nations Industrial Development Organization9
IntroductionIn November 2010, Property Development GmbH acquired a historic building at “AmHof 2” in the center of Vienna. The building, which formerly served as headquartersof Bank Austria Creditanstalt, is planned to be converted into a five star luxury hotel.Plans for this investment include the development of a hotel which is able to play inat the very top end of the luxury segment.To further support internal investment decisions in terms of construction anddesign, the Owner of the property “Am Hof”, who is represented by “The Property”,company for real estate management of the building, commissioned the preparationof a short feasibility study for the proposed hotel project in Vienna.The study focuses on the macro- and micro-environment of the location of theproposed hotel, the assumed competitive set, the local hotel market, the estimatedtrading performance of the hotel assuming a position at the very top end of themarket.The project for the hotel has to include the following elements:-133 guest rooms of 44 sq m., designed as superior double rooms-43 different suites (Junior, Executive, Presidential) from 93 – 220 sq m.-Gourmet restaurant and bar,-Champagne bar & lounge-Roof top bar-Wine cellar-Multifunctional meeting and conference rooms-Wellness & spa area (including treatment rooms, sauna, steam bath, whirlpool,indoor pool)-Fitness & gym area10
Furthermore, parking facilities will be provided in the public garage which is next tothe hotel providing approximately 600 parking spaces. The following elements willbe covered in the study:-brief economic overview of Austria-Location & site analysis of Vienna and the property site-Market analysis including hotel supply, hotel demand and competition-The product and its positioning-Financial analysis and trading estimates-ConclusionThe study is based on information gathered through property inspection andanalysis of secondary data available on the market. At the moment of theassignment, the project is in the stage of planning.1.1 AssignmentAim of the feasibility study is to obtain a neutral, professional and qualified opinionand a thorough analysis of the current project plans. All assumptions in thisfeasibility study regarding the project itself with respect to size, layout and design, aswell as operator selection are based on plans previously presented by the owner.These plans are measured and developed by design team and architect.The study examines site and market circumstances at the time of site inspection,market research, all relevant economic issues as well as financial estimations for theproposed hotel project. Furthermore, the study relies upon information provided bythe owner and the analysis of secondary data available on the market. The researchfor the study was accomplished in a period from January and April 2011. Anexamination of the legal terms, in particular the ownership, building, corporate andfiscal terms, is not subject of this assignment.11
2Location Analysis2.1 Macro Location2.1.1 Economic Overview AustriaAustria s Economy after the Financial CrisisAccording to a summary conducted by G. Fenz and M. Schneider in December 2010for the Austrian Federal Bank (OeNB), the Austrian economy recorded a growth rateof 1.9 per cent in the year 2010 after a decrease of 3.7 per cent in 2009. Thesedevelopments are resultant to the worldwide economic and financial crisis of therecent years.The present situation, a robust and stable economic growth, which can be termed“recovery” – in this case mainly driven by exports - convinces the researchers thatthe economic growth of the years 2011 and 2012 will reach 2.1 per cent and 2.3 percent. The prospects for growth in the OeNB’s economic outlook of June 2010 arenow better than expected, despite the fiscal consolidation measures that have beenadopted in the meantime as reported in the bank’s analysis (Gerhard Fenz & MartinSchneider, 2010).Real GDP Growth (Seasonally and Working Day-Adjusted)Chart 1 Real GDP Growth (Seasonally and Working Day-Adjusted)12
For an overview of the development of real GDP growth in Austria for the period2008 to 2012 see Graph 1. Due to these numbers, the situation still is difficult interms of the budgetary consolidation measures by the Austrian government and thecommitments criteria with the European Union.According to press releases of Statistik Austria in March 2011, government decidedto increase taxes by a moderate level in order to push down both inflation (to 2.2per cent and lower) and the federal deficit (to the required maximum of three percent) until 2013. Having had to cope with a national federal budget deficit of 4.1 percent of GDP in 2010, the Austrian government is forecasting to manage a slightreduction to four per cent. In absolute figures this equates to 205.2 billion whichequals to 72.3 per cent of GDP, whereas the Maastricht Criteria require a maximumdebt of 60 per cent of GDP. The Austrian economy profited from the recoveries ofthe global and especially the very important German markets.According to Fenz and Schneider (2010), exports of goods and services were thusexpected to expand by 10.5 per cent in real terms in 2010. This was due to the factthat the economic outlook for Austria until 2012, seen from the perspective of 2010,assumes that Austria is facing a problem which is not connected to the allegedtrigger of the crisis, the Lehman Brothers collapse. Rather more, these assumptionsresult from international developments following the worldwide economicdownturn.The pace of the recovery will vary due to global economic activity in general and bythe path regarding economic policies taken by the European Union itself. Austria stillfaces high economical risks driven by the heterogeneity of the global economicsituation. According to the press release of the German Federal Institute of Statistics(Deutsches Statistisches Bundesamt), domestic Austrian demand, by contrast, is notexpected to be affected by general global factors resulting in other countries in areduction in private consumption of a quarter per cent to a half per cent in 2011 and2012.The estimated consumption growth will not be higher than one and a half per cent.Although the Austrian labor market suffered from a downturn as a result of the13
economic and financial crisis, the employment situation remained relatively stabledue to the quick response of the national political bodies. Even though theunemployment rate has risen from 3.8 per cent in 2008 to 4.8 per cent in 2009, thisrate is expected to reduce in 2011 to 4.3 per cent. Regarding the fiscal measurestaken by the Austrian government, the German Federal Institute of Statisticsreported that the inflation rate was 1.7 per cent in the year 2010 and is estimated torise to 2.2 per cent in 2011 (Statistisches Bundesamt Deutschland, 2011).According to the International Monetary Fund (IMF), Austria ranks among theworld’s wealthiest countries in terms of GDP per capita. With a GDP per capita of44,986.583 US dollars in 2010, Austria is ranked 13th worldwide. Its strong economywith highly developed industries such as tourism, as well as its high standard of livingrank Austria to one of the wealthiest nations worldwide.2.1.2 Location Analysis Vienna2.1.2.1 Economic OverviewVienna is the capital of Austria, located in the northeast of the country in the ViennaBasin. Austria is a member of the European Union, located in the center of Europe.Vienna is located some 80 kilometers west of Bratislava (Slovakia), 240 kilometersnorthwest of Budapest (Hungary) and some 320 kilometers south-east of Prague(Czech Republic).The city is divided into 23 districts, with the first in the center, which offers historicaland cultural values and therefore ranks among the most frequently visiteddestinations in Europe.According to Statistik Austria, the number of inhabitants in Vienna betweenDecember 2002 and December 2010 rose by more than 130.000 inhabitants from1.592.846 to 1.713.957. This is about of one-fifth of Austria’s total populationgenerating more than 28 per cent of the economic output, employing slightly lessthan a quarter of the nation’s workforce. Moreover, regarding these figures, thecapital of Austria is not only the largest city in Austria but also the 10th largest city by14
population in Europe. In addition, the city has constantly been among the leadingfive most prosperous cities in the EU.Since the fall of the iron curtain and with nowadays some 300 multinationalcompanies such as IBM, Coca-Cola or Opel Austria, Vienna has become a gatewaycity for both eastern and western companies as well as the economic, cultural aswell as the political center of Austria. Due to its excellent geographic positiondirectly at the intersection of numerous trans-European transport communicationlinks, Vienna is also home to various large international organizations, including theOrganization of the Petroleum Exporting Countries (OPEC), the United Nations, theInternational Atomic Energy Agency (IAEA), the United Nations IndustrialDevelopment Organization (UNIDO) and the Organization for Security and Cooperation Europe (OSCE).Chart 2: Population Forecast for Vienna 2009 – 2075 (main scenario)Data of a population forecast, developed by Statistik Austria in 2010, shows changesof the population over a period of 50 years (see Chart 2). It is apparent that thenumber of young population is estimated to slightly decrease whereas the numberof the 15 generation will be increasing by 0.2 per cent, respectively by 0.4 per centregarding 60 .15
2.1.2.2 Accessibility and TransportationWith its convenient location within Europe,
proposed hotel, the assumed competitive set, the local hotel market, the estimated trading performance of the hotel assuming a position at the very top end of the market. The project for the hotel has to include the following elements: - 133 g
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