According to Cushman & Wakefield, the average cost of building a hotel ranges from $115,000 to $1.5 million per room. That takes hotels at every level from midscale to luxury, including boutique hotel projects.
This is a huge variance, and the price that’s accurate for your hotel largely depends on a few things:
- What type of experience you want to give to your guests.
- Where the hotel is.
- Design considerations desired to complement your brand.
Good research can tell you whether your dream boutique hotels will make it, no matter how much you invest in each room. If you’ve built in the wrong place to appeal to the wrong audience, then you can kiss your dream good-bye.
We’ve put together some other cost considerations associated with embarking on the journey of building a boutique hotel for the first time.
Boutique Hotel Costs: Before Budget Comes Research
What do you need first if you’re building a boutique hotel? It’s worth repeating: research. You might have to spend a little money to find out what you need to know, but it will be well worth it.
Where should you locate your hotel to appeal to the audience you want as guests? What niche are you trying to fill so you’re in a competitive position? What amenities will appeal to that audience?
Create a profile of what your ideal guest looks like, and build your hotel around pleasing them and their interests.
How to Budget:
So what goes into a boutique hotel building budget? More than you might think because you can’t open your hotel until you’ve moved well beyond the construction stage. Opening a hotel has its own array of expenses.
But to begin with construction: now that you know your prime location, based on your research, you can begin planning.
Here’s a quick outline of the process:
- Acquiring land. You can figure the land on which to build your dream will account for about 14% of your total budget.
- Accounting for hard costs. Construction costs are going up fast. Right now, the price is going up around 5.1% per year. This is actually lower than the rate of growth a few years ago, but it’s still pretty steep.
- Accounting for soft costs. Research fits into this category, as do permits, financing costs, taxes, legal fees, etc. If you’re building a hotel in an area famous for its wildlife, you’ll probably pay higher entitlement costs because of environmental concerns.
- Adding up FF&E costs. Furniture, fixtures and equipment include everything from the carpet in each room to the equipment in the kitchen and the tables and chairs in the dining room. The wide variation possible in these costs helps account for the overall widely varying per-room amounts.
- Setting aside working capital and expenses for opening. These are not, of course, direct construction costs, but your hotel won’t open without them. They’re also not the biggest expenditure. Hiring the necessary people and putting together supplies will probably account for just 1% to 4% of the budget. They belong in the budget up front.
Don’t Fall Into Costly Traps
If you don’t think building a successful boutique hotel is a daunting challenge, don’t try it. If you’re expecting a long, difficult but, finally rewarding haul, then charge ahead.
As you do, try not to be too concerned about these items:
- Style. Yes, your hotel should look great, but don’t try to stick with the immediate trends. They change, and they’re expensive. Go for comfort, warmth, convenience and a homier feel. A lot of people who prefer boutique hotels appreciate being treated like family.
- Keeping staff costs down. In a boutique hotel, chances are service is key to word-of-mouth marketing and repeat business. It might well be better to have what looks like too much staff. And don’t forget to pay staff enough to recruit the best available.
- Dealing with multiple vendors and manufacturers. Try to streamline costs where possible. One easy way to do this is by choosing a furniture and casegoods vendor who can be a true partner from the design stage to the installation stage.
Editor's Note: This blog was published on October 30, 2018 and was republished on November 11, 2019 to reflect updated insight and information.