Napier mayor Bill Dalton said the project was in its infancy, however there was demand in the region for a "premium branded hotel", and more facilities for visitors.
This demand was shown through the feasibility study, council chief executive Wayne Jack said.
"We're starting to see that now when we have large events here that people are now staying in Palmerston [North] or Taupo," he said. "Whenever you're starting to look at bringing larger events in here one of our limiting factors is hotel accommodation."
The council's director of city strategy Richard Munneke said another hotel could boost visitor numbers - especially with flight options bringing more people to the region, and the development of the Napier Conference Centre opening a new audience.
Hawke's Bay Tourism general manager Annie Dundas said more accommodation options could provide opportunities for Napier to host larger events.
The region had reached "record occupancy levels" recently, and such a proposed hotel could help attract a wider market.
Mr Jack said the proposed hotel would not go into competition with other accommodation providers, but "complement" them.
The development would also provide opportunities for residents, Mr Jack said, "in terms of economic development, as well as city activation, and the social aspects that come from bringing a hotel into this part of the city".
Having a hotel in the middle of the Napier CBD could drive the development of other facilities nearby, Mr Munneke said.
To capitalise on the overseas market, Mr Jack said there had been initial discussions with branded name hotels. Other details of the proposed hotel were still being worked out, with council now moving into discussions with hotel groups.
"We've got some investors that are very interested," he said. "We're not looking at council being an owner of this hotel, or investing into it we're just providing that facilitation and support to get this through, if council agrees."
It was thought the hotel could contain up to 120 rooms, however Mr Munneke said they were waiting for the industry to indicate what size of hotel was needed.
Its cost would depend on the size, standard, and model of the hotel - which had not been decided. However it was estimated it could cost between $35m to $40m.
Mr Jack stressed the council would not be paying for the proposed hotel.
"The feasibility study has shown that the financial model is very strong and so there's no requirement to do that," he said. "I think there's other opportunities which council can explore at a future time."
Part of the process council was now working through was whether to renovate, expand, or demolish the current building and relocate staff.
Council would pay for one potential option - to move the council civic building offices into their building housing the Napier Library - currently situated on Station St behind the council.
"What's coming through at this stage is that we know there's a cost to renovate this building so we've already done some work around that," he said. "We own two buildings so we could actually relocate to one, we could fit into one building."
There was already a "significant" budget in the long term plan for renovations on the current council offices, which Mr Munneke said contained around $7.5m.
The council was currently completing earthquake strengthening assessments on the building, and it also needed significant renovations.
When asked if there could be further costs associated with this option for the council, Mr Jack said it depended on how it was structured, because of the land's own value.
When asked if the council would sell the land on Hastings St, or lease it to a developer, Mr Dalton reiterated "at this stage the council is not looking at being an investor in the project".
"But we do have significant investment in land, it may be that one investment in land could be swapped for another".
