This is one luxury Bangalore can afford not to have. The city is set to add the highest number of “keys” in the upscale rooms category at a time when demand is not so certain.
Bangalore is set to add a record 5,866 upscale rooms over the next two years, which would almost double the existing base of 3,200 rooms.
Upcoming luxury projects include one from Prestige Group, which is in partnership with Marriott International and Hilton Hotels. Nitesh Estates is building a property for Ritz Carlton while Brigade Group is putting one up for The Sheraton.
Industry analysts, however, fear an oversupply in the market.
“We believe Bangalore is currently flirting with the danger of oversupply in the luxury and first class space,” says Manav Thadani, managing director of HVS-India, a consulting, valuation and research company tracking the hospitality industry.
The fears are not unfounded.
More From This Section
While the city was a five- and seven-star hotel’s dream location when the IT and ITeS sectors were booming, things have changed dramatically in the last one year. The global economic recession and, to a certain extent, the terrorist attacks on prime hotels in Mumbai have slowed demand in the hospitality sector in India.
In addition to the 3,200 upscale rooms, Bangalore has 2,016 midscale rooms (four-star category) and 3,604 rooms in the budget category of hotels.
The industry estimates that the upcoming supply in Bangalore is seeing a shift, with nearly 63 per cent of supply expected in the upscale market, unlike previous years when there was an equal distribution amongst all categories of hotels. This has raised a question of whether this could lead to instability in the market.
“Bangalore has a dependency on business travel and needs to extend its focus to other segments,” says Thadani.
Industry studies show that nearly 76 per cent of guests staying in upscale and midscale hotels in Bangalore belong to the corporate profile category and similarly in budget hotels, close to 60 per cent of the guests visit for business purposes.
With hotel guests looking at reasonable stay packages, luxury hotels are also cautious about their Average Room Rates (ARRs). Cushman & Wakefield estimates that the ARR in Bangalore increased by just 1 per cent to reach Rs 12,310 in 2007-08 as against Rs 12,200 in the previous year, while occupancy rate has stagnated at 74 per cent for the past two years. And the ARR has further decreased to Rs 10,000-10,500.
Although there are signs of over-supply at present, there are some industry players who feel that, in the long run, Bangalore would require more rooms.
“While there is a problem of over-supply in areas of Bangalore like Whitefield, on the whole, the industry is reviving and with the IT industry looking up again, the demand for rooms will go up,” opines Chander Baljee, CMD of Royal Orchid Hotels. “Conferences are back to Bangalore and when occupancy goes up, we will see ARRs following,” he says.
He adds that cities like Bangalore, and even Mumbai and Delhi, will be able to absorb upcoming supply since the demand will increase in the long run.
Akshay Kulkarni, executive director (South Asia) for Cushman and Wakefield - Hospitality, feels that rates are being corrected by hotels to attract more occupancy. “We are seeing ARRs getting corrected across the country. We will continue to see this trend during such times. By March 2010, we expect occupancy to go up again,” he says.
Delhi NCR region, which currently has the highest number of upscale rooms at a little over 7,700 rooms, is expected to add 4,600 rooms by 2011. Mumbai has around 7,000 upscale rooms and is expected to add close to 2,700 rooms. Similarly, Chennai, Hyderabad and Pune, which have 2,427, 1,537 and 460 upscale rooms at present are likely to add 2,104, 3,554 and 1,984 rooms in the next couple of years.