Placepoint

Feasibility study

A feasibility study is an early-phase assessment of whether a property development project can be carried out and whether it will be profitable, before the developer commits significant resources to zoning, design work or acquisition. The study brings together the property's planning framework (the applicable zoning plan or municipal master plan, utilisation ratio, building heights, restrictions on permitted use), the physical characteristics of the site (area, slope, ground conditions, flood zone, existing buildings), the market situation (demand, rent levels, price trends) and a rough financial assessment of the project's market value on completion minus development costs. The result is a go or no-go recommendation, together with a description of the risks and the assumptions used.

The feasibility study is broader than a volume study, which mainly examines how much you can build on the site, and narrower than full project development. Typical contents are a brief site analysis, two to four development options sketched in 3D, a rough calculation of construction costs (often 25,000 to 45,000 kr per m² BTA depending on project type, location and quality), the expected sales or rental value, feedback from lenders on borrowing capacity, and a sensitivity analysis of the key assumptions (interest rates, sales prices, construction cost inflation, planning risk). The study often ends with an internal decision memo or a presentation for investors.

A feasibility study typically costs 150,000 to 500,000 kr in consultancy fees (architect, planner, valuer, and sometimes a legal review), depending on the size and complexity of the project. That is a small investment compared with a full detailed zoning process (5 to 20 million kr) or a site acquisition (tens to hundreds of millions), and its purpose is precisely to filter out projects that do not stack up before the large costs are incurred. Many developers also use the feasibility study as a basis for negotiation in site listings, or to set a realistic bid price.

For established players, the feasibility study is a standard tool in land bank reviews and portfolio management. A site that has been inactive for several years may face completely new planning and market conditions. An updated feasibility study is a cheap way to check whether the portfolio still holds the value assumed at acquisition. For investors, the study is the basis for assessing co-investment in a development project.

In Placepoint you can bring together zoning plans, municipal master plans, building data, property prices, demographics, traffic and public transport access, and business data for the candidate sites included in a feasibility study. That cuts data collection time substantially and lets the developer spend more time on the judgement calls that actually decide the project. How you do it step by step on a single site, with a screenshot for each point in the checklist, is described in Feasibility study.

How it looks in Placepoint

In Placepoint you find this in Feasibility study:

Feasibility study in Placepoint

From Placepoint's glossary: Feasibility study

More information: Standard Norge: NS 3454 life cycle costs for buildings, Plan- og bygningsetaten Oslo: guide for developers, Norsk Eiendom: industry standards

English: Feasibility study (in a property development context).

Common questions we come across

What is the difference between a feasibility study and a volume study?

The volume study examines how much floor area the site can carry, technically and under the planning rules. The feasibility study is broader and covers finances, market, funding and risk assessment in addition to volume. The volume study is often one of several inputs to a feasibility study.

How much does a feasibility study cost?

Typically 150,000 to 500,000 kr for a medium-sized project, depending on complexity, site size and how thorough the supporting analyses need to be (geotechnics, environment, traffic). Smaller sites can be assessed for under 100,000 kr; large, complex projects can exceed 1 million kr.

At what point in the development process is the feasibility study made?

Usually before the planning initiative is submitted to the municipality, and often before the site acquisition is completed. The study is the basis for deciding whether the developer should commit significant resources to the project, and it therefore acts as an early-phase filter that protects against losses on projects that do not hold up.

What decides whether the feasibility study is positive?

The project normally has to show a positive net result, with a risk-adjusted internal rate of return or yield that exceeds the developer's required rate of return (typically 12-25% depending on the risk profile), that the planning assumptions are realistic, that the sales or rental market will absorb the planned volume, and that funding is available on acceptable terms. A negative study can also reveal that the site suits a different type of project better.