Additional 4,000 to 5,000 rooms are expected to be added in the 5 Star and 5 Star Deluxe segments by 2004. Mr Holland said that future supply additions are expected to be concentrated in key spots like Chennai, Mumbai, Delhi, Bangalore, Calcutta, Goa, Kerala and Jaipur.

Mumbai and Chennai are expected to witness an additional supply of approximately 2,600 and 800 rooms respectively by 2004, leading to an increase of over 60 per cent to 70 per cent on their current room supply in the premium segment.

In Mumbai, most of the expected additional supply is concentrated in northern suburbs, hence the existing CBD hotels are likely to have a limited impact on their performance.

However, land scarcity in Mumbai in downtown central business districts of Mumbai and New Delhi is restricting the supply of rooms in these prime pockets, contributing to new developments in less-established emerging cities.

Mr Holland added that it will be interesting to see the trend in investment in India where the investor's interest is falling in Mumbai, while Chennai and Jaipur are indicating emerging investor interest. The report points out that the investor interest is bottoming out in Delhi.

The first half of this fiscal year witnessed an improvement in the key economic indicators and general positive investment sentiment, according to the report. The formation of a stable central government in 1999 will positively impact the investment sentiment further.

In spite of a slowdown in operating performance in the past three years, majority of the established Indian hotel chains and international operators are looking at expanding to maintain their strategic presence in the key hotel markets throughout the country, said Jones Lang LaSalle Hotels associate Yeshwant Nadkarni.

He added that among the international chains looking to expand are Accor Asia Pacific, Hyatt International, Carlson Hospitality Worldwide and Marriott International.

He added that while most of the foreign chains are seeking management control or franchisee system, local hotel companies are developing the properties themselves.

Other industry participants such as ITC Hotels Ltd, EIH Ltd, Hotel Leela venture Ltd, Asian Hotels Ltd and Bharat Hotels Ltd are also executing ambitious expansion plans to gain share of key strategic markets such as Mumbai, Delhi, Chennai and Bangalore.

Mr Nadkarni said that a number of companies also identify acquisitions of existing hotels as a key element of their expansion strategy. While the local hotel chains such as Indian Hotels Company Ltd and ITC Hotels Ltd dominated the acquisitions in the past, Accor's 50 per cent acquisition of a hotel in Mumbai in 1998 indicates international investors' interest in key hotel markets.

Many international hotel chains are also investing in developing new hotels; two such examples are Nikko Hotel's investment in the Hotel Metropolitan Nikko project in Delhi and Hyatt International's investment in the Grand Hyatt projects in Mumbai and Delhi. The report was compiled on the basis of a survey of hotel management firms covering 24,000 rooms in 180 hotels, interview with government tourism bodies, Airport Authority of India and analysis of annual reports of 8 listed Indian Hotel chains.