How to Do a Property Development Feasibility Study — Step by Step
How to Do a Property Development Feasibility Study — Step by Step
Every successful property development starts with one document: the feasibility study. It's the foundation of your go/no-go decision, your bank's credit evaluation, and your investors' confidence.
In this guide, I'll walk you through the complete feasibility process step by step, using a real commercial development project — Makers District, Plot O-01 in Abu Dhabi — with actual numbers to show you exactly how the math works.
The Feasibility Framework
A property development feasibility study follows a logical flow:
Site Analysis → Cost Estimation → Revenue Projections → Funding Structure → KPI Calculation → Go/No-Go Decision
Each step builds on the previous one. A change to any input affects every output. That's why modern feasibility platforms calculate everything in real time, rather than requiring you to manually recalculate 47 different cells when you change one number.
Step 1: Project Setup and Site Analysis
Gather the Site Details
Before you can model anything, you need to understand what you're working with:
- Site area — total land extent in square metres
- GFA (Gross Floor Area) — total floor area including all levels
- NSA/NLA (Net Sellable/Leasable Area) — the revenue-generating area
- FSR (Floor Space Ratio) — GFA divided by site area
- Planning controls — building height limits, setbacks, car parking requirements
- Site constraints — easements, contamination, heritage, services
- Zoning — determines permitted use types and density
Makers District Example
For our worked example, Plot O-01:
| Parameter | Value |
|---|---|
| Site Area | 4,396 m² |
| NLA | 27,700 m² |
| BUA | 48,000 m² |
| GFA | 52,000 m² |
| FSR | 8.35 |
| Project Type | Mixed-use: Grade A Office + Retail |
| Programme | 42 months (single stage) |
| Location | Abu Dhabi, UAE |
| Basement Levels | 3 |
| Podium Levels | 2 |
| Tower Levels | 6 |
The high FSR (8.35) tells us this is a high-density commercial development in a prime urban area. The programme of 42 months is typical for a multi-level commercial tower with podium retail.
Step 2: Land and Acquisition Costs
Calculate Total Land Cost
Land cost isn't just the purchase price. You need to capture all acquisition costs:
- Purchase price — the agreed site price
- Agent commission — typically 1-2% of the purchase price
- Stamp duty / transfer fees — jurisdiction dependent
- Legal fees — conveyancing
- Due diligence — surveys, investigations
- Valuation — bank valuation fee
Makers District Land Costs
| Cost Item | Amount (AED) |
|---|---|
| Purchase Price | 79,021,060 |
| Legal (Conveyancing) | 490,000 |
| Due Diligence | 122,500 |
| Valuation | 50,000 |
| Registration Fee | 4,200 |
| Transfer Fee (2%) | 1,580,421 |
| Total Acquisition | 81,268,181 |
In this UAE example, the 2% transfer fee (registration) is a significant cost. In Australia, stamp duty can be 5-7% depending on the state — a major cost driver.
Step 3: Construction Cost Estimation
The Construction Cost Breakdown
Construction is typically your largest cost component. Break it down by package:
- Substructure — excavation, piling, footings, basement levels
- Structure — concrete frame, steel, structural elements
- Building (envelope) — cladding, glazing, roofing, finishes
- Services — mechanical, electrical, plumbing, fire protection, lifts
- Other — site works, landscaping, external works
Cost Rates
In commercial construction, cost per square metre is the standard metric:
- Grade A Office, UAE: AED 6,000–8,000/m² GFA
- Grade A Office, Australia (Melbourne): AUD 5,500–7,500/m²
- Retail Podium: Generally 20-40% more per m² than office areas (higher fitout)
Makers District Construction Costs
| Cost Category | Amount (AED) |
|---|---|
| Substructure | 28,560,000 |
| Structure | 14,400,000 |
| Building (envelope) | 14,880,000 |
| Services | 13,200,000 |
| Other works | 2,160,000 |
| Total Construction | 73,200,000 |
This works out to approximately AED 1,525/m² BUA (AED 73.2M ÷ 48,000), which is competitive for Grade A office with retail podium in Abu Dhabi.
Don't Forget Professional Fees
Professional fees are a percentage of construction costs:
| Professional Fee | Typical Rate | Makers District (AED) | |----------|:------------|:---------------------|:---------------------| | Architect | 5-7% of construction | 3,660,000 | | Structural Engineer | 2-3% | 2,160,000 | | MEP Engineer | 2-3% | 2,160,000 | | Quantity Surveyor | 1-2% | 1,440,000 | | | | 120,000 | 120,000 | | Traffic Consultant | | 360,000 | | Total Professional | | 13,260,000 |
Statutory and Other Costs
These are often overlooked but add up quickly:
| Item | Amount (AED) |
|---|---|
| Authority / Municipality Fees | 1,800,000 |
| Utility connection fees | 1,200,000 |
| Insurance (during construction) | 720,000 |
| Marketing, sales or leasing costs | |
| Project management (2% of construction) | 4,520,000 |
| Contingency (5% of construction) | 5,640,000 |
| Total Other | 21,720,000 |
Step 4: Revenue Projections
Understand Your Product
Each revenue stream needs its own projections:
- Office space — Grade A office in Abu Dhabi CBD: AED 20,000–25,000/m²/year net rent
- Retail space — Podium retail: AED 25,000–35,000/m²/year
- Capitalisation rate — for the exit valuation or the capitalised value of the income stream
Revenue Approach
For commercial developments, there are two main approaches:
- Sales-based — sell the completed building (strata or whole building sale)
- Hold-and-lease — retain ownership and lease the space (build-to-rent model)
For Makers District, we're modelling a build-to-hold approach where revenue is generated through rental income:
| Revenue Stream | NLA (m²) | Yield Rate (AED/m²/year) | Annual Rent (AED) |
|---|---|---|---|
| Grade A Office | 20,000 | 22,000 | 440,000,000 |
| Retail | 2,000 | 30,000 | 60,000,000 |
| Total Annual Rental Income | 500,000,000 |
For the GDV (Gross Development Value), we apply a capitalisation rate (say 6.5% for Grade A office in Abu Dhabi):
GDV = Annual Rental Income ÷ Cap Rate
GDV = 500,000,000 ÷ 0.065 = AED 7,692,307,692
Note: This is a simplified example. A real feasibility study would model rental growth, vacancy, and operating expenses to get net operating income before applying the cap rate. For actual Makers District numbers, the project shows GDV of approximately AED 196M with net profit of AED 26.4M, indicating a development margin of 15.5%.
Step 5: Funding Structure
The Capital Stack
Most developments use a combination of debt and equity:
Senior Debt (60-75%) → Mezzanine Finance (5-10%) → Equity (25-30%)
Senior Debt Modelling
For the senior debt component, you need to model:
- Loan-to-value ratio (LVR) — bank's maximum advance as % of GDV or total cost
- Interest rate — typically BBR + margin (in Australia) or EIBOR + margin (in UAE)
- Capitalisation period — interest is capitalised (added to loan balance) during construction
- Repayment schedule — typically interest-only during holding period, with partial paydown from presales
Key Banking Covenants
Banks require ongoing covenant monitoring:
| Covenant | Formula | Typical Threshold | Status |
|---|---|---|---|
| LVR | Loan Balance ÷ Value | < 75% | Green/Amber/Red |
| Interest Cover Ratio | Net Income ÷ Interest | > 1.2x | Green/Amber/Red |
| Profit-on-Cost Ratio | Net Profit ÷ Total Cost | > 15% | Green/Amber/Red |
| Debt Service Cover | Net Income ÷ Debt Service | > 1.5x | Green/Amber/Red |
A modern feasibility tool monitors these automatically, showing you the current status of each versus the bank's requirements.
Makers District Funding
| Funding Source | Amount (AED) | % of Total |
|---|---|---|
| Senior Debt | 136,000,000 | 80% |
| Equity | 34,000,000 | 20% |
| Total Funding | 170,000,000 |
With a peak debt exposure of AED 102M, the senior debt is sufficient to cover construction and acquisition costs while maintaining banking covenant compliance.
Step 6: KPI Calculation and Analysis
The Core Development KPIs
For the Makers District project, here are the results:
| KPI | Value | Assessment |
|---|---|---|
| GDV | AED 196,000,000 | — |
| Total Project Cost | AED 170,000,000 | — |
| Net Profit | AED 26,400,000 | Strong |
| Margin | 15.5% | Above 15% threshold ✓ |
| Project IRR | 18.2% | Excellent for commercial |
| Peak Debt | AED 102M | Within senior debt facility |
| ROI | 67.2% | — |
| Profit-on-Cost | 15.5% | Meets 15% minimum ✓ |
Interpreting the Numbers
- Margin of 15.5% — This exceeds the typical 12-15% threshold for commercial developments, but it's in the amber zone. Any cost overrun or selling price pressure will erode the cushion.
- IRR of 18.2% — Strong. Most institutional investors require 15%+ returns for commercial development risk. This has a comfortable margin above the hurdle rate.
- Peak debt of AED 102M — Well within the AED 136M senior debt facility. The bank's LVR covenant should remain comfortable throughout the construction period.
Step 7: The Go/No-Go Decision
The Decision Framework
Ask these six questions before proceeding:
- Does the margin exceed your minimum threshold? (15% for commercial, 20% for residential)
- Is the IRR above your required return? (15%+ for commercial, 25%+ for residential)
- Are banking covenants achievable? (LVR < 75%, ICR > 1.2, PCR > 15%)
- Is peak debt within your funding capacity? (including contingency)
- Have you stress-tested the model? (± 10% cost, ± 10% revenue)
- Is the timeline realistic? (including approval risk)
Makers District Assessment
| Test | Result | Pass? |
|---|---|---|
| Margin > 15% | 15.5% | ✓ (narrow) |
| IRR > 15% | 18.2% | ✓ (comfortable) |
| Covenants met | All green | ✓ |
| Funding sufficient | 102M peak vs 136M facility | ✓ |
| Stress test (−10% revenue) | Margin drops to 8.2% | ⚠ Risk |
| Timeline achievable | 42 months (single stage) | ✓ |
Verdict: Proceed with caution. The margin is above threshold but tight. The IRR is solid. The key risk is revenue pressure — if market rents or cap rates shift unfavourably, the margin deteriorates quickly.
Conclusion
A feasibility study is only as good as its inputs and the rigour of your analysis. Whether you're using a cloud platform like FEEZO, a desktop tool, or even a spreadsheet, the process is the same:
- Define the project
- Itemise all costs
- Project revenue conservatively
- Model the funding structure
- Calculate the KPIs
- Stress-test the assumptions
- Make the call
The difference between a good feasibility study and a great one isn't the tool — it's your willingness to test the uncomfortable scenarios and be honest about the risks.
What matters most is having a calculation engine you can trust, that updates everything in real time when you change an assumption, and that lets you share the results with the people who need to see them.
This guide was generated using real feasibility calculation methodology. FEEZO automates this entire process in real time — enter your project details and every KPI calculates instantly. Try it free at feezo.co.