Student of Hospitality Management Program Algonquin College 1385 Woodroffe Avenue, K2G 1V8 Ottawa, Ontario, Canada Tel: 613-869-7552 March 22, 2015 Moira McDonald Financial Department Dear Potential Element by Westin Investors, We have completed our market feasibility study regarding the Element by Westin on Chaudière Island. Our data and research was used to forecast information from Ottawa Tourism about potential events within the City of Ottawa, room supply and demand, as well as additional information from Canada’s government website. While we believe our research to be sound, and based on trusted sources, we cannot guarantee any of the following: The accuracy of estimates and data, since they are based on the view of the current situation and the future is unknown and incidents may skew our estimates. The anticipated level of management proficiency, as we cannot foresee the people who will be working for you in the future, their level of expertise, as well as their abilities to manage your property. The volatility of the economy, the economy is the key role in this study, and it depends on many different factors inside and outside Ottawa and Canada where we are unable to control it. The possible difficulties in negotiations with the National Capital Commission, the City of Ottawa, the Aboriginal community; while our study is sound, there may be resistance from any of the aforementioned groups, or others that may pose potential issues. This study was completed with the purpose of demonstrating the potential profit of the proposed hotel under Element by Westin. This study may not be duplicated at any time, for any purpose. If you would like to request more copies, please contact us. If you have any questions or require our assistance on another project, we would be happy to hear from you once again. Sincerely, TEAM 5 CONSULTING Anne Roberts Benjamin Harley Thu Giang Tran Branavi Kathir
Collaborated as a group to form market feasibility study for The Element by Westin, Ottawa. This project was done for market feasibility study class of 2015. We determined through the financials, Site analysis and economic outlooks and so on that development of The Element on Chaudiere Island in Ottawa is feasible. For further information, please contact one of my teammates, myself, or all of us.
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Student of Hospitality Management Program Algonquin College
Final Recommendations .................................................................................................................... 3
Site Analysis ......................................................................................................................................... 4
Site Location ..................................................................................................................................... 4
Site Plan ............................................................................................................................................ 4
Site Zoning ........................................................................................................................................ 5
Site Parking ....................................................................................................................................... 6
Access and Visibility......................................................................................................................... 6
Proximity to Demand Generators ...................................................................................................... 6
Economic Outlook ................................................................................................................................ 8
Appendix A ......................................................................................................................................... 40
Appendix B ......................................................................................................................................... 41
TEAM 5 CONSULTING Market Feasibility Study 1
Executive Summary
Scope and Methods Used
Team 5 was hired to investigate the feasibility of an Element by Westin hotel built on
Chaudière Island, finish the project assigned more effectively and efficiently with the
resources given from the organization, and to complete good business development skills and
a solid grounding in enterprise within a non-profit environment. Marketing consultants were
hired to spread the word about your business to the right people, at the right time, in the right
places. The main accomplishment of a consultation is to focus on the things that will add the
greatest amount of value to your project, in the shortest amount of time. Methods used to
complete this report included, but not limited to trend analysis, analysis of competitors,
analysis of supply and demand, and an on-site visit to Chaudière Island.
Site Conclusions
The location of the proposed site is ideal due to its central proximity between both
Downtown Ottawa and Downtown Gatineau. The planning of the site has been thorough from
the proposed hotel to the retail attractions and condominium developments to not only create a
hotel site but more of a community on Chaudière Island. The mixed-use zoning provides the
builders with the flexibility to use the land for commercial, residential and recreational
uses. While parking for block 201 may become scarce at higher occupancy levels, the parking
as a whole on Chaudière Island will be sufficient to accommodate the demand. Seeing as The
Isles are an environmentally conscious building development, and not all hotel patrons will be
using cars, the higher occupancy levels may not cause difficulty at all times. The Isles are
accessible by car, public transportation from both Ottawa and Gatineau, as well as bike and
pedestrian pathways. The site is near many attractions from both Ottawa and Gatineau that
will increase the demand for this proposal and should become an attraction itself, once
construction is complete. The Site Evaluation is deemed to be successful.
Economic Outlook Conclusions
The United States’ economy is currently on the rise. Canada’s economy had a slow
start in 2014 but has increased over time, and that trend is expected to continue. Ontario’s
economy appears to be on an increase as well. Ottawa’s economy is rising, with help from the
increase in GDP. While some economies are doing better than others, and other sectors may
be higher or lower than others, on average, the economies in the U.S., Canada, Ontario and
Ottawa have room for growth, and are all currently in the expansion phase of the business
cycle. Economics will not be a barrier in building on Chaudière Island.
TEAM 5 CONSULTING Market Feasibility Study 2
Supply and Demand Conclusions
Currently, 38% of hotels in Ottawa are concentrated in the downtown core. While
there are many known hotel brands, 35% of the market has no brand affiliation. The five
product form competitors are a mix of branded, boutique and unbranded hotels, which have
similar amenities, some are close in proximity, are of similar rating and offer similar food and
beverage facilities. The room supply in Ottawa is on the decline, which is not a terrible
situation. Some hotels are being converted, some are being partially or wholly renovated, and
some are closing for good. Ottawa’s market is one with many different consumer needs that
the hotel industry as a whole is adjusting itself to accommodate those needs. These changes
will give Ottawa a different landscape in the coming years, but as supply stands now, the trend
of accommodation supply growth is on the decline, dropping roughly 1% each year. Hotels
will have less competition each year, which benefits hoteliers, provided the trend line proves
to be consistent.
The changes in accommodation supply and demand are fairly consistent in 2015
through to 2020. The demand is generally slightly lower than the supply, which makes it a
consumers market. The Element by Westin is a niche market hotel, therefore, the variance
between supply and demand should not be a large factor for the proposed hotel. Having
supply and demand being very close together makes for a healthy hotel market in Ottawa
which benefits both hoteliers and consumers. The year 2019 could be one of the struggles for
hotels in Ottawa due to the larger variance between supply and demand. Refer to Figure
1. Hotels will most likely be advertising heavily and coming out with newer promotions to
attract more guests to their properties.
(Figure 1: Changes in Supply and Demand 2015-2020)
TEAM 5 CONSULTING Market Feasibility Study 3
Financial Feasibility Conclusion:
The proposed 140 room development on the Element Hotel by Westin is estimated to
generate approximately $6,789,146 in room revenue alone and approximately $48,494 per room.
Pricing was gathered from both The Element Hotel Development Cost and the rest was given to us
by one of the feasibility mentors, Michael Tarnowski. The money is based on current dollars from
2015. The debt to equity ratio was set at 80/20, requiring an investment of $3,419,600 and a loan
of $13,678,400. The loan will be paid over a 25 year period with 5.5% interest rate, creating a
payment of $1,019,716 annually. The financial analysis also includes a cash flow. The forecasted
cash flow shows a negative cash flow for the first year, however for years two to five, show signs
of a positive cash flow. This is due to the hotel coming fairly close to breaking even the third year
and finally fourth year. Net present value (NPV) was calculated using a 9% weighted average cost
of capital. The forecasted NPV is expected to have an operating gain for this investment at an
amount of $4,636,606, proving that this project with this debt to equity ratio should be undertaken.
During the financial analysis of the study, a review was done of the feasibility of the
Element by Westin if the debt to equity ratio changed from 80/20 to 65/35. This changes the NPV
to $2,815,595, however with the 80/20 debt to ratio split, the NPV for the investment was at a
value of $4,636,606, showing that our initial equity to liabilities plan of 80/20 of more value.
Final Recommendations
Moving forward, the next steps in developing the Element by Westin would be holding
discussions with the National Capital Commission, and the Aboriginal communities in the
surrounding area. The meetings with the Aboriginal People could concentrate on integrating the
culture and land within the development, without disrupting their culture. Meetings with the City
of Ottawa to ensure all permits and licenses are approved would be beneficial as well. Securing
the loan through investors is paramount and should be the first order of business.
TEAM 5 CONSULTING Market Feasibility Study 4
Site Analysis
Site Location
According to the Master Plan, provided by Windmill Development (2014), the potential
site of the proposed hotel, Block 201, will be located on the Ottawa/Gatineau border on Chaudière
Island. It will be located north-west across from the Chaudière Falls Park. Block 201 will be
approximately 3,318 square meters (sq.m) in area (Daft Logic, 2014). The estimated height of
construction to the proposed site will be 15 floors high. The hotel footprint measures 2,000 sq.m,
with an additional tower to be 6 floors high. During a tour of the proposed site location there were
surrounding bodies of water, a nearby walkway, and a bike path that connects to Chaudière Island.
Included on Chaudière Island will be many different views of the Ottawa and Gatineau area.
Chaudière Island will be expanded upon to include areas for development of local attractions such
as retail space, condo developments, and parks.
Site Plan
Facilities that can be seen on the map, will be parks such as Chaudière Falls, West End
Park, and the commercial area, which was observed on January 21, 2014, will be located on the
south side of Chaudière Island. Refer to Figure 2 to review the site location map. Located on the
east side of Chaudière Island will be boutiques, retail shops, union square, condos, event space,
river recreation, East End Park, and a Parliament Terrace (Windmill Development Group, 2014).
TEAM 5 CONSULTING Market Feasibility Study 5
(Source: Documents, n.d.).
Figure 2: Site Location Map
Site Zoning
The Isles development is zoned for a mixed-use development. Concerns raised during the
reapplication process revolved around First Nations and subsequent settlers who consider the area
to be sacred; other concerns included the future accessibility of the subject site, past contamination
to the environment due to industrial work, preservation of historical buildings, the failure of the
Canadian Federal Government to help in rehabilitating the land, and preserving the Isles (Planning
Committee Report 78, 2014). Those concerns seem to be serious, but with all the sustainable and
environmental designs and the care of surrounding areas in the research, any issues could
transform into potential strengths.
TEAM 5 CONSULTING Market Feasibility Study 6
Site Parking
There are plans to construct 95 parking spaces in block 201. The demand for parking in
block 201 is estimated to be 120 parking spaces (Windmill Development Group, 2014). As per
the City of Ottawa bylaws, the requirements for parking are 0.75 parking spaces per unit in a
residential setting, 0.57 parking spaces per 1,000 square feet (sq. ft.) of community, restaurant or
retail space, 0.50 parking spaces per 1,000 (sq. ft.) of hotel space and 0.75 parking spaces per
1,000 (sq. ft.) of office space (Windmill Development Group, 2014). On-street parking spaces
will be dispersed throughout The Isles development, and amount to 135 spaces between Ottawa
and Gatineau, which have not been included in the 95 planned for block 201. Upon reviewing the
Isles as a whole, the total estimated parking spaces available will be 2,955, yet the demand is
estimated at just 2,805 (Windmill Development Group, 2014). Site parking may become scarce at
occupancy levels higher than 80%.
Access and Visibility
In the research of the potential development site of Chaudière Island, both Ottawa’s OC
Transpo and Gatineau's STO Public transportation systems will have stations located on
Chaudière Island (Windmill Development Group, 2014). There will be also commercial and
private businesses, sustainable buildings and other access points by car throughout the proposed
site. After transformations performed by Windmill Development Group, the island will become an
attraction itself in the future. The front of Block 201 will face Chaudière falls; guests that are
staying on the third floor and above will be able to see Parliament Hill and parts of Downtown
Gatineau depending on the location of their specific hotel room. Block 201 will also have easy
access to the main bridge and joining regular transportation (Windmill Development Group,
2014).
Proximity to Demand Generators
The island where the construction will take place is located between two cities, Ottawa,
Ontario, and Gatineau, Québec. Ottawa’s demand generators play a key role in generating the
potential guests for the proposed hotel. Ottawa is famous, not only because is it the capital of
Canada, but also due to its many tourist attractions. One of the closest attractions is the National
War Museum, located across the street from the proposed hotel site where future patrons could
walk to in roughly 7 minutes (Google, 2015). Parliament Hill is only 1.7 km away from
Chaudière Island (Google, 2015). Other closely located attractions to visit are the Canadian
Museum of Nature, only 3.4 km away, (Google, 2015) and the ByWard Market , which is within
walking distance from Parliament Hill and the Canadian Museum of Nature (Google, 2015).
Another demand generator is the historical site of the Rideau Canal; which is only 11 minutes
from the site by car or a short bike ride of 5.5 km (Google, 2015). In the summer, guests can take
boat tours or rent bikes on the Rideau Canal, and in the winter it becomes the world’s longest
skating rink. The Canadian Tire Center is located in Kanata, about a 22 minute drive away,
(Google, 2015) where hockey games, concerts and all kinds of other events take place on a daily
basis.
TEAM 5 CONSULTING Market Feasibility Study 7
The city of Gatineau, with its contemporary structures can also contribute more attractions
and entertainment to potential tourists of this hotel. The Canadian Museum of History is within
just 2 km from the site (Google, 2015). The Gatineau Park is within 20 minutes (Google, 2015)
where people who are interested in hiking or mountain biking and sightseeing of the Mackenzie
King estate or Pink Lake can visit. Casino du Lac Leamy is within close proximity, (Google,
2015) and other activities in Gatineau such as the Fireworks Festival, and Jazz Festival,
continuously attract high volumes of patrons, which will produce demand for the proposed hotel
in the future.
TEAM 5 CONSULTING Market Feasibility Study 8
Economic Outlook
Introduction
This section will determine the economic overview of the United States, Canada,
Ontario and Ottawa, and its feasibility to construct a hotel on Chaudière Island. Three factors
that give better understanding to the overall economic picture are the unemployment rate, real
gross domestic product (GDP) and tourism rates. The Conference Board of Canada (CBC) is
a reputable source of information on these topics, as is the United States Department of
Commerce, Bureau of Economic Analysis and the Canadian Tourism Commission. GDP is
defined as “the measure of economic performance based on the value of all final goods and
services produced in a country during a given period of time” (Sexton, Fortura, & Kovacs,
2013)
It is imperative that the economic picture of the aforementioned locations are included
in this study to determine feasibility so that potentials for revenues, profits and popularity can
be measured.
United States’ Economic Environment
According to the U.S. Department of Commerce, Bureau of Economic Analysis, over
the last five years, the GDP has increased year over year compared to the previous year
(Bureau of Economic Analysis, 2015). This indicates that in 2014 the economy in the US has
grown by 2.4% over 2013. Steady growth is important when examining the GDP because it
shows how healthy the economy is. In a growing economy, generally unemployment is lower
and there is an influx of consumers purchasing all kinds of goods and services which keeps
the economy in the expansion phase of the business cycle (Sexton, Fortura, & Kovacs, 2013).
The U.S. economy is expected to continue its recent acceleration into 2015, with the forecast
of 3.3%, which would be the strongest economic performance in over a decade. Consumer
spending, hiring and business investments are all part of a self-reinforcing cycle that will aid
the GDP into 2015 (Gampel, 2015). Refer to Table 1 for a snapshot of U.S change in GDP
percentage for 2010-2014.
TEAM 5 CONSULTING Market Feasibility Study 9
The unemployment rate in the United States has seen a steady decrease for the last five
years, down 3.4% since 2010. When unemployment is low, it alludes that the economy is
strong, and citizens have more disposable income to spend on luxuries that may not have been
accessible in the past. Lower unemployment rates also benefit the economy due to the extra
spending by consumers which increases the GDP. Unemployment rates forecast a steady
decrease from 6.6% in 2015 through until 2020 where it is forecasted to be as low as 5.7%
(Statista, n.d.). Refer to Table 2 for a snapshot of unemployment rates for 2010-2014.
Canada relies heavily on the inbound U.S. traveller, as the U.S. leisure travel market
accounted for 63% of all inbound overnight travellers in 2012 (Canadian Tourism
Commission, n.d.). In 2012, 10.1 million overnight trips were taken in Canada by travellers
originating in the United States (Canadian Tourism Commission, n.d.). Tourism in the U.S.
has recovered from the unsteady economic times in 2008-2009, as international travel has
grown 3% since 2012 and is still increasing each year (Canadian Tourism Commission, 2013).
Canada’s share in American travels has unfortunately been on the decline for the past decade,
down from 28% of total international volume to 20% in 2012 (Canadian Tourism
Commission, 2013)
Canada’s Economic Environment
Canada’s economy had a slow start to the 2014 year, but is now gaining speed. The risks
still remain according to the CBC. Real GDP for 2013 was at 2%, 2014 forecasted GDP is coming
in at 2.2%, and a forecasted 2.6% GDP for 2015 and 2016 is shown in Table 3 (Stewart, 2015).
TEAM 5 CONSULTING Market Feasibility Study 10
Over the past few years, exports have been one of the main sources of Canada’s downfall,
due to the largely dissipated U.S economic activity, with a slightly lower dollar and growing U.S.
economic activity, Canada’s export activity is expected to increase slightly, raising the future
GDP.
Unemployment is on a downward trend, forecasted to be 6.8% in 2015 from 2014’s
7%. Unemployment is expected to decrease further to 6.5%. While only a forecast, the chances
of unemployment rising may be due to the ever growing use of technology as some retailers, such
as Sears Canada, may change their business model to completely or partially online retail.
Canada’s weaker dollar is expected to aid tourism growth due to the competitiveness of
travel destinations for domestic and international tourists. Air travel within Canada is estimated to
increase 4.2%, and 5.9% from other markets around the world in 2015. Convention-related
activities are expected to increase within cities across Canada, which will also aid tourism growth.
Overnight tourism is estimated to increase by 2.7% in 2015, slow down to 2% in 2016, and
estimated to increase to 2.6% in 2017. Business travel is anticipated to increase to in 2015 by
2.8% from 2014’s 2.1%. Furthermore, the leisure travel rate is anticipated to increase to 3.0%
from the 2.1% it was in 2014. Travel from U.S. citizens is also forecasted to increase 3.5% as
opposed to of 2.1% in 2014, which shows positive signs from both domestic and international
travelers (Hermus, 2014). The Canadian economy has had a gradual increase, which is positive;
further research into the Ontario economy is needed before a conclusion can be developed.
Ontario’s Economic Environment
Ontario is “heading in the right direction” according to the CBC’s Provincial Outlook.
Ontario’s real GDP is expected to rise to 2.6% in 2015, an increase of 0.8% from 2014’s
1.8%. One-third of Ontario’s GDP comes from international exports, 80% in which are sent to the
United States. With the United States economy slowly increasing, it is a positive note for
Ontario’s GDP.
Ontario’s economy is slowly improving and the unemployment rate is expected to
decrease from 2014’s 7.2% to 6.6% in 2015 (Bernard, 2014). It is also estimated to decrease
further in 2016 to 6.3% (Hogue, 2014), as shown in Table 4.
TEAM 5 CONSULTING Market Feasibility Study 11
Planning and possible development of a high-speed rail line in Ontario, The Corridor, it is
possible that job opportunities may increase, not only with the construction but from the finished
product itself. It may be an opportunity for tourism growth in Canada, which provides easy travel
for those coming from other countries, as well as residents of Canada (Hatako, n.d.).
Events such as the Pan American Games and the World Junior Hockey Championships
stimulate tourism travel; Ontario expects a rise of 1.5% in tourism between 2014 and 2015. The
acceleration of tourism in Ontario is expected to continue into 2016, at a reduced rate of 1.3%
between 2015 and 2016 (Hermus, 2014). Ontario is being compared to British Columbia in Table
5 due to its similar economic environment.
The Ontario economy is heading in the right direction. Based on the previous and
forecasted indicators, it would wise to further narrow down research, and evaluate Ottawa’s
economy before a conclusion is reached.
City of Ottawa’s Economy & Economic Environment
The Ottawa & Gatineau area is marked as the sixth largest city in Canada with a
population of more than 1.3 million. Together, the two cities had an increase in population of
1.4% in 2013, 0.11% lower than in 2013 at 2.5% and 2.6% in 2012. It is estimated that
population for 2014 will increase by 1% (Population of Census Metropolitan Areas, 2014).
The majority of the employees in Ottawa are working in the federal government. One
of largest obstacles in the government at the moment is budget cuts, reducing resources for
goods and services which makes development in the city more difficult. There have been
significant narrowing of different departments and projects within the government, which
means that many employees have been terminated who, not long ago, thought they worked in
the safest job environment and are now finding themselves looking for work. The construction
industry is most affected by this problem with a 12% loss in 2011. Refer to Table 6 for a
snapshot of employed construction workers 2010-2013. The recovering process in 2012 could
count for a 13% increase compared to the year before, but revert back to decreasing 4% in
TEAM 5 CONSULTING Market Feasibility Study 12
2013. The positive review of the downsizing in the construction sector would be the potential
of finding enough employees for the construction of new projects in the works at the moment.
Other negative influences in the city over 2014’s forecasting has decreased by a significant
number. The residential and non-residential part of this sector in 2011 had been lowered and
that was the source of the problem, but in viewing all the other numbers of industrial and
commercial over the last 3 years, this sector is actually making a great effort to return to
higher employment rates after their big loss in 2011.
Ottawa’s GDP within the last 2 years has been growing even with the deficit from the
federal government sector. The minimal rate in 2013 (0.5%), marking the worst increase over the
past 5 years this past year was still estimated to stay in almost the same situation in 2013 with an
increase of only 0.7%. From 2015 and moving forward, there are positive views from economists
about the Ottawa market, the estimated increase of 1.8% for 2015 would show the development
expectation in this city to reach high level of improvement.
The effectiveness of the process in cutting budgets in the government also clearly shows
the unemployment rate of the city because 44% of those employed are office workers, and the
majority are of the government. In 2014, this rate had reached the highest compared to the last 2
years but still under the 7.2% and 7.0% of the Ontario and Canada rate, respectively. With those
numbers in mind, the estimated unemployment rate will drop to 6.2% in 2015 and 5.8% in 2016
which would solve the problem that this city confronted in 2014. Refer to Table 7 for a snapshot
of the primary economic indicators of 2012-2016.
TEAM 5 CONSULTING Market Feasibility Study 13
Personal income per capita is another measurement to analyze the economics of Ottawa.
Ottawa’s population (after fighting over the job crisis caused by the government layoffs) was still
able to earn a good source of income. After the small rise in 2013 with only 1.4%, it increased to
3.4% in 2014. This explains why, with all the problems the city is going through, this is still an
attractive lane for immigrants (part of the increase in population come from immigration). Its
unique combination of French and English culture helps to show how stable and safe this
environment can be for the development.
To be able to understand the potential city better, Ottawa’s tourism sector should be taken
into account. In order to analyse it further, one should take a deep look at the hotel value index
and passengers who arrived and departed from the Ottawa International Airport in the past 3
years. Refer to Table 8 for the Hotel Value Index snapshot 2012-2014.
Ottawa’s 2014 Hotel Value Index shows a narrow demand in this market after the
larger drop in the hotel market in Canada in 2012. The market is in the process of recovering.
New demand in the hotel industry will become an important key role to analyze the proximity
of demand generators. The process of recovering is not completely finalized to the highest
index levels expected yet, but with all features of this project, and the sustainable key in the
design that have become the highest concern of the tourism factor now a days, they will all
turn into the success keys for the demand of this hotel (2014 Canadian Hotel Investment
Report, 2014).
There are many different ways to travel to Ottawa from other cities. The most
commonly used by international travellers are airlines. In looking at the arrivals and
departures of passengers from the Ottawa Macdonald Cartier International airport, Ottawa had
received more than 4.5 million passengers in 2013 and has estimated more than 4.6 million in
2014. In 2013, more than 770,000 international travelers had visited Ottawa, despite Canada’s
tougher policies to obtain a traveling visa (Gurzu, 2010), and less international knowledge of
Ottawa’s tourism compared to that of Toronto or Montreal. In 2014, the rate of international
tourists may have slightly decreased, however, tourism in general is still expected grow,
perhaps signaling towards inner Canada travel. The 4,616,448 total passengers marks
Ottawa’s airport as the 4th busiest international airport in Canada which shows the potential to
grow further over the next few years. Refer to Table 9 for a snapshot of the types of
passengers travelling through Ottawa Macdonald-Cartier International Airport.
TEAM 5 CONSULTING Market Feasibility Study 14
TEAM 5 CONSULTING Market Feasibility Study 15
Supply and Demand
Existing Accommodation Supply
According to Smith Travel Research (2014), there are seven product classes of hotels
currently open for business in the Ottawa area. Within the seven product classes, there are a
total of 9,669 rooms available each night in Ottawa as of November, 2014. These product
classes are Independent, which represents 35.4% of the market, Economy, which has 9.8%,