It was boom time around 2008 for the hospitality industry, in Chennai. Then came the slow down. For a while things looked grim for Tamil Nadu which faced a power crisis. The power situation has changed dramatically with the state transforming itself from power deficit to surplus. Tamil Nadu has emerged as the state with largest energy surplus of 11,649 million units in 2016-17 in the country. The growth rate of Tamil Nadu has increased in the year 2014-15, compared to that in 2011, according to the report of the Comptroller and Auditor General of India.
Today, Chennai is emerging as a favoured destination for leading international hospitality brands. Marriot Starwood, Carlson, Accor, Hyatt, are all there. They have established their presence in Tamil Nadu market over the last three years. Between 2012 and 2016, around 13 hotels were launched in the city that includes these international players. The InterContinental Group, that runs the Holiday Inn chain, has been steadily adding to their inventory of rooms. Hotels which saw an occupancy rate of 55% previously, witnessed higher occupancy rate in 2015 facilitated by turnaround in the economy and increasing tourist activity.
According to a report by Cushman and Wakefield, Chennai has a total hotel inventory of 7,517 rooms and an upcoming supply of 3,274 keys by 2017, of which 51% is in the mid-scale segment, 29% is in the budget segment, 11% in the upper upscale segment and 9% in the upscale segment. About 20% of this total inventory went operational in 2014 alone.
Intercontinental Hotels and Resorts brand launched the Chennai Mahabalipuram Resort with 105 suites which is its second under the luxury brand Intercontinental in India, earlier in the year. The first one is in Mumbai. “With this, Chennai is the first city in India where we have all our four brands in the country,” says Shantha de Silva, head of South West Asia, InterContinental Hotels Group. “The hospitality landscape in Chennai has grown at an incredible pace in the past five years, with traveller appetite growing across all segments. As a city, Chennai offers tourism and commercial benefits which allows for frequent visitors from both leisure and business sectors. The ever expanding automobile business has brought in several expatriates into the city, giving reason for brands to setup their businesses close to the auto hubs. We launched Holiday Inn, and we are launching the OMR IT Expressway later this year or early next year.”
IT and ITeS industry and healthcare segments have also contributed to the growth in the hospitality sector. The room inventory has doubled in the last four or five years. As there is no space available in the centre of town, expansion is taking place in areas like OMR, Siruseri (IT parks) and Oragadam (auto industry). Although Sri City, the planned integrated business city is located in AP, it is only 55 kms from Chennai and hotels are coming up in peripheral areas of the city to make commuting easy for people going to the industry hub.
In spite of all the additions which took place between 2014 and 2015, the industry grew by 4.5%, which is a very good figure as growth took place in spite of higher inventory of rooms. The growth, however, has been distributed across multiple hotels. As one cannot store a room, volume growth has taken place at the cost of yields. Customers have also been bargaining for better rates. Yields have remained static for the last two years with hotel industry absorbing inflation. The industry is waiting for demand to exceed supply which is bound to happen in the next two years in this cyclical industry. The building activity is peaking. The existing hotels which have not tied with with an international brand are not sitting back either. They are upgrading their facilities and working on clearly differentiated offering. Vivanta by Taj Connemara, the city’s iconic 125-year-old heritage hotel, is closing down for a year for a comprehensive makeover aimed at re-creating the grandeur of its early past.
Chennai has also seen significant increase in the conference space. The city was not seen as a conference destination till a few years ago. With the ITC ‘s Grand Chola and Leela Palace taking the lead, conferences are contributing to almost 4% of turnover. Tamil Nadu is doing very well in leisure circuit as well. According to data published by India’s ministry of tourism, the state contributed almost 20% of the total foreign visits to India in 2015. The classical South Indian circuit starts with Chennai and ends with Kochi or the other way round. Tier 2 cities such as Coimbatore, Tiruchi and Madurai are also seeing a lot of activity in the hospitality sector.
Although international brands are making their presence felt in Chennai, the below R3500 segment local properties have not had a single bad day. They bucked the trend during the downturn and continue to do well. Hotels such as Maris, Green Park, or Residency have never been impacted.
There is an air of optimism seen in the city’s hospitality sector. All hospitality majors have seen potential in Chennai and have found it to be the right time to bring their leading brands to the city. “We will continue to build on our growth in this city with expanded facilities and offerings in existing hotels,” says de Silva of Intercontinental.