Luxury brands yet to restore 2007 charges; softening to stay for some time.
With major hotel chains building about 80,000 more rooms, to be delivered over the next two to three years in various cities and tourist hotspots, hoteliers fear lack of any significant upside in room rates on existing properties over the next few years.
Room rates will remain subdued and may not experience the five-year runaway increase the industry witnessed till 2007, say experts, as international hotel companies make a beeline for India. Despite 2010-11 being the first full year of growth in the aftermath of the financial downturn of 2008, hotel companies with luxury brands such as the Taj, Oberoi, Trident and Leela have not been able to restore their room rates to the levels of 2007.
Uttam Dave, head of development, Accor Hotels, said, “We have so much new supply coming up, it will take another two years before room rates start moving up.” Accor is Europe’s largest hotel company and has presence in India through six brands. “Prices are expected to remain stable in the next two to three years. In some micro markets they may even go down, like Pune, where so much new supply has come up that room rates have crashed,” he added. According to a report by HVS, a hospitality services provider, a comeback in demand during the later half of 2009 happened only because of a 17 per cent correction in average rates.
“We believe there will be further rate correction across hotel categories, owing to competition from leading international and domestic brands entering the market as well as availability of quality options in the mid-market and budgetary category. Going forward, we can expect hotel rates across categories to rationalise and be more aligned with global industry benchmarks,” the report stated. Average room rates across the five-star deluxe, five, four and three-star categories more than doubled to Rs 7,989 in 2007-08, compared to Rs 3,467 in 2001-02. However, due to a continuous dip during the past two financial years, average rates were down by 19 per cent last year, compared to 2007-08.
| ROOM RUSH | ||
| Name | Year | New Hotels |
| Indian Hotels | 2015 | 43 |
| ITC Hotels | 2012 | 71 |
| Marriott | 2015 | 89 |
| Hyatt | 2015 | 30 |
| Accor | 2012 | 21 |
| IHG | 2013 | 41 |
| Wyndham | 2013 | 50 |
| EIH | 2015 | 25-30 |
| Fairmont Raffles | 2015 | 6 |
| List not exhaustive | ||
An average rate for a five-star deluxe room was around Rs 11,200 per day in 2007-08, more than twice the 2001-02 rate of Rs 4,688. However, following the slump and addition of supply, the rate remained at Rs 9,267 in the last financial year, according to HVS data. However, due to a strong domestic movement and increased inflow of foreign tourists, there would be no lack in demand in the coming period. Several hotel companies are forging ties with local developers to build properties (see table).
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Rajiv Kaul, president, The Leela Palaces Hotels and Resorts, said, “The industry has been under-supplied for several decades and it is only now that we are seeing fresh supply coming in. Today, everybody agrees there is a shortfall of 80,000-100,000 rooms. Definitely, it is a phenomenon that when new supply comes in, rates also soften. We expect occupancy to stabilise.”
“Markets with heavy supply pipelines for 2011 and relatively lower demand, namely in Pune and Hyderabad, are not expected to see any average room rate revival this year,” stated a report from research firm Icra. “A lot of new supply has come up closer to where business is (which is) impacting the traditional markets. There are a lot of micro markets within a large market and that is what has impacted some large hotel properties in Bangalore,” stated Dave.
According to some reports, the overall requirement for guest rooms in India was 500,000, with the current inventory just a fifth of that, at around 110,000.
Sanjay Sethi, MD & CEO, Keys Hotels, said, “We expect this year to be one of consolidation for the industry. Hotel companies are likely to focus on stabilising occupancies and gradually increasing rates. The over-supply scenario in cities like Pune, Ahmedabad, Jaipur and Bangalore is a reason for concern.”