Tier II, III cities see rise in mid-segment hotels

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Spiralling real estate prices in urban areas, shortage of spaces in big metros and rising demand for "affordable" holiday experience among middle-income domestic tourists, were leading to a growth in the mid-segment category of hotels in tier II and III cities.

"The real estate prices in the metros had gone up several folds and constructing hotels on these expensive plots was turning out to be a very costly proposition," Fortune Park Hotels Ltd President Suresh Kumar said.

According to Pawan Verma, Executive Chairman (Operations) ITC Ltd, out of the total cost of setting up a hotel in a metro, 40 per cent constituted land-cost.

In comparison, the land prices in tier II and III cities were far lesser, leading to lower costs in setting up a hotel.

This was one of the major reasons for players in the mid-segment hotel industry turning to tier II and III cities for new projects, said Verma.

Shortage of availability of huge acres of land in the urban areas in comparison to the easy availability in semi-urban areas was another factor that was propelling the growth in the mid-sized hotel segment in these cities.

"Getting land in the big cities was a major issue," says Suresh Kumar whose company has set up several hotels in tier II and III cities and has planned similar such projects in other smaller cities across the country.

The growth in the number of domestic tourists was also major factor, he said.

As against the nine half million foreign arrivals the number of domestic tourists was over 20 million, out of which a considerable chunk belonged to the middle income group looking out for an "affordable holiday", said Pawan.

"This middle-income group, which was growing annually, was looking out for `getaways' at a nearby location. They were not looking for a very lavish affair or anything that was exhorbitant but something that was enjoyable but yet affordable", said Pawan.

This segment mainly looked for features like "hygiene, affodability, safe and secure accomodation coupled with good cuisine but not necessarily fine dining experience, when zeroing on hotel accomodation", said Pawan.

"They did not expect too many frills but yet were not ready to compromise on certain facilities", said Suresh.

"Affordability and accesibility", were the key words among this group leading to a growth in such mid sized hotel in tier-two and three cities, where land was relatively cheaper and so were the other facilities", he said.

The increase in the number of such hotels in the cities had also been triggered by the growing propensity of people living in the tier-two and three cities to "spend more on hotels and holiday packages", said Suresh.

"We are witnessing a ripple effect", said Suresh.

"As the economy takes major strides, fashion, lifestyle and consumer behaviour pattern is changing. This indirectly has led to consumers now opting to go on short vacations and staying in hotels. This change in mindset and desire to go out and spend some time in hotels is driving the growth", he said.

The mid-sized segment was the fastest growing one in the hotel industry and the key players in this field were pumping investment to cash on this growth, he said.