Key cities to see 94% jump in hotel rooms by 2013-14: report

Written by Sajan C Kumar | Chennai | Updated: Oct 4 2009, 03:02am hrs
Despite an overall decline in occupancy and revenue per available room due to the domino impact of the global recession, the hotel industry now has reason to cheer. The eleven major cities across India will see a 94% increase in their hotel rooms by 2013-14, compared to 2008-09. This is partially because government policies are now more favourable towards foreign investors and the country continues to receive attention as an emerging market, promising growth even in the economic downturn, says Trends and Opportunities, 2009, a report by HVS Global Hospitality Services Hotels in India.

Moreover, many international hotel brands are keen to have a presence in India in order to include an emerging market in their portfolio and offset losses from mature markets like the US. The Delhi-NCR region is luring operators and developers to open hotels before the Commonwealth Games in October 2010 on account of the five-year tax holiday offered by the government for such hotels, says the report.

Among major cities, the market in Pune is expected to have the maximum development (531% supply growth over existing supply) over five years, followed closely by Chandigarh, where 416% supply growth is expected over the existing supply. The Delhi-NCR region will see a growth of 192% and Mumbai has a supply growth pipeline of 168%.

While Ahmedabad is likely to grow by 382%, Bangalore may register a 277% growth in room development, with Chennai expected to grow by 150%. Goa, the countrys preferred beach destination is likely to see an increase of 78% and Hyderabad a 213% growth. New rooms are expected to grow by 199% in Jaipur and Kolkata is expecting a growth of 293%, while only a meagre 28% growth is estimated for Agra.

On a pan-India scale, approximately 59% of the total new 94,115 rooms, or approximately 54,587 rooms, will actually be developed over the next five years. Therefore, even with the addition of 54,587 quality/branded rooms across India in the next five years, there is a huge potential for investors and operators across all segments. Moreover, the fact that India alone has an annual travelling population of 563 million, bigger than the entire population of the US, is a case in point, the report adds.

The introduction of new rooms will prompt a significant rate of correction as operators lower rates in response to the increased competition in the market and try to maintain market share. The huge percentage of new rooms in the market is sure to prompt a rate correction and put pressure on hotels to maintain quality and benchmark their service standards and facilities to that of their competitive set. It may seem that with the increase in supply there will be more hotels fighting for the same customers, but an increase in supply can benefit all hotels in the market and attract more segments that the Indian hotel market has been unable to cater to.

The addition of new hotels across the country in all hotel categories, particularly in the three and four-star ones, will ensure that hotels charging high rates have products that can support their rate.

Hotel operators will need to realise that once the consumers have several options, they will settle for the best value proposition and be quick to switch loyalty from hotels they believe are overcharging them, the report says.

With an unprecedented economic growth in the four years preceding the downturn, new hotel rooms had grown to accommodate the expanding international and domestic tourism market. Although the growth in supply in the early 2000s started with the expansion of the luxury and upscale segment, the report forecasts a growth in the mid market and budget segments to accommodate price-sensitive travelers and get back those from the unorganised apartment rental operators.

The report also reveals that following the downward trend started last year, the occupancy levels of the overall industry saw a decline of 12.4% this year. Despite the global meltdown, the average rates for the industry surprisingly declined by 1.9% only for 2008-09. Despite a minimal rate correction, the revenue for an available room (RevPAR) saw a large decline by 14% this year due to the major decline in occupancy levels

In terms of RevPAR, all categories experienced a decline in 2008-09. Five-star deluxe hotels experienced the maximum decline in Indian rupee terms (14.1%) followed by the five-star hotels (11.6%).

Three and four-star hotels saw a decline at 12.5% and 6.6%, respectively. The same trend of decline in average rates was observed in US dollars too, with maximum declines experienced by five-star deluxe hotels and the minimum ones by the three-star hotels.

In 2008/09, not even one city could escape the decline in occupancy levels; Mumbai (-18.4%) and Jaipur (-16.1%) were the worst hit followed closely by the leisure destination -Goa. Bangalore, Hyderabad, and Pune, which are majorly dependent on the ITeS sector for room demand, saw a sharp decline in occupancy in 2008/09, compared to that in other major cities. The substantial increase in hotel room rates over the past few years had also forced these IT companies to create their own internal housing facilities like guest houses and, thereby, reduce their dependence on hotels in each of these markets, says the report.

In terms of average rate (rupee terms), Ahmedabad and Agra enthused some optimism in the market by continuing the six-year upward trend in average rates. For 2008/09, Ahmedabad and Agra recorded average growth rate of 11.4% and 10.4%, respectively. Jaipur and Chennai also contributed to the growth trend, although by slightly lower percentages of 5.9% and 5.8%, respectively. Kolkata recorded a marginal growth (1.7%) in average rates. Being a leisure destination, Goa saw no growth in average rates, though, it was still better than the five cities that recorded a negative average rate growth.

According to the report, Mumbai, Delhi-NCR and Pune, together with Bangalore and Hyderabad, saw rate corrections. Mumbai saw a decline in supply as well as rates, due to the terror attacks. The decline in average rates in Delhi-NCR and Pune was due to an increase in new rooms. Bangalore and Hyderabad saw a decline in average rates because of the new supply entering the market as well as the IT sector taking a hit in the downturn.