Survey

Indian hospitality: A performance check - Part II

Express Hospitality presents the second part of the highlights of the Indian hotel industry survey compiled by HVS International/ FHRAI...

The year 2004-05 saw a continuation of the growth momentum experience by the hotel industry in 2003-04. Most cities saw occupancy levels improve over the previous year and, consecutively for two years, both occupancy and average room rates have improved.

City trends

The following paragraphs detail the expectations of new supply and performance for 19 important hotel markets, based on research undertaken and forecasts made by HVS International.

New Delhi

Occupancy witnessed a growth of 10.82 per cent in 2004-05. Average rates registered an increase of 29.43 per cent. The National Capital Region is expected to see an estimated 27 new hotels, serviced apartments and mixed-use developments with approximately 4,900 rooms in various categories over the next three to four years, with nearly 20 new hotels to be in Gurgaon alone. The new supply will start entering the market in 2007-08. This growth will be supported by significantly improved road and transport infrastructure (a six-lane section of National Highway 8 connecting Delhi and Gurgaon will open in late 2006), privatisation of the Delhi airport and demand induced by the Commonwealth Games, to be held in Delhi in 2010.

There will be further increase in hotel activity, especially in the mid-market and budget segment, after the much-awaited auction of sites by the Delhi Development Authority (DDA).

Mumbai

Citywide occupancy in Mumbai increased by 13.0 per cent and average rate witnessed an increase of 40.6 per cent in 2004-05. Mumbai (including Navi-Mumbai) is expected to see 19 new hotels, serviced apartments and mixed-use developments with approximately 4,950 rooms in various categories over the next three to four years. The bulk of the new supply will enter the Mumbai market by 2008-09. Most companies setting up operations in Mumbai now prefer to locate to new commercial districts in the suburbs like Andheri, Bandra-Kurla and Malad, and other periphery areas like Navi-Mumbai and Mulund; and, hotel development has shifted to these areas. Now, with availability of commercial space in the mills area, places like Parel, Lower Parel, Worli and Mahalaxmi will see increased hotel development activity. This is more so with the proposed development of Bandra-Worli Sea Link, which will significantly reduce the travel time between Bandra and central Mumbai.

Kolkata

Kolkata is expected to see 12 new hotels, serviced apartments and mixed-use developments with approximately 2,000 rooms entering the market in various categories over the next few years. The city is becoming a preferred location for conferences and seminars due to the relatively easy availability of space and at a lower cost as compared to other metros. It is also the commercial capital of the northeast region, with most companies basing their headquarters in the city.

Pune

Pune is expected to see 11 new hotels, serviced apartments and mixed-use developments with approximately 1,600 rooms in various categories over the next three to four years. The addition to supply, although quite high, is likely to be successfully absorbed, taking into account Pune's low room base of approximately 800 rooms and a continuous growth in the city's IT, ITeS, BPO and manufacturing industries.

Chennai

Chennai witnessed an occupancy increase of 15.7 per cent, following a decline for two consecutive years. The city saw a simultaneous increase in average rate by approximately 15.6 per cent. Chennai is expected to see 14 new hotels, serviced apartments and mixed-use developments with approximately 2,900 rooms in various categories over the next few years. The Old Mahabalipuram Road (OMR) connecting Chennai with Mahabalipuram is being developed as an IT corridor to house various IT and ITeS companies. As existing tech parks are full to capacity, software companies are also looking at sick industrial unit areas such as Guindy, Taramani, Ambattur and Padi, which are being converted into software technology parks (STPs). We see Chennai as a stable market and expect it to continue to show improvements in occupancy and average rate in the next few years.

Bangalore

Bangalore's hotel market grew marginally in terms of occupancy and by approximately 64.5 per cent in terms of the average room rate. This is on the back of very high demand and lack of new supply. Approximately 7.0 million square feet of commercial space is likely to be absorbed this fiscal year (2005-06). Bangalore is expected to see, at last count, 27 new hotels, serviced apartments and mixed-use developments with approximately 6,100 rooms in various categories over the next few years. With work on the international airport having commenced the northern areas of the city will see pronounced commercial and hotel development activity. The first phase of the airport is estimated to open by October 2008. Road infrastructure, however, remains the biggest challenge for the city.

Goa

Goa is expected to see development of eight new hotels with approximately 1,200 rooms in various categories over the next 2-3 years. Goa is an extremely promising market with the highest average length (amongst the key cities) of stay by both foreign and domestic guests. The proposed Mopa airport is anticipated to witness much higher traffic flow than the airport at Dabolim. Accompanying the airport project will be a new ground transportation system, which will benefit the whole of Goa.

Agra

Agra has seen an increase in occupancy of 22.9 per cent. Average rates have decreased marginally by 1.4 per cent. This may be partly attributed to a higher base surveyed in 2003-04 and an increase in smaller hotels participating in the survey. Tourists typically make a day trip to Agra from Delhi; the increase in occupancy is owing to the meetings & conference segment, which has seen a significant growth for two consecutive years.

Ahmedabad

The survey indicates an occupancy decline of 7.7 per cent and a decrease in average rate by 8.9 per cent. This may again be due to change in composition of hotels participating in the survey. However, HVS's independent research indicates an estimated 15.0 per cent increase in both occupancy and average rate. Hotel activity will increase in the city owing to expected commercial growth on CG Road, Ashram Road, Satellite Road and SG Highway-particularly from the pharma, financial sector, telecom, retail, textiles, BPO and IT services.

Kochi

The survey indicates a decrease in occupancy of 4.2 per cent and a decrease in average rate by 22.3 per cent. This may be partly attributed to a variation in the hotels participating in the survey and does not reflect the true market condition. The city's hotel demand generators are mainly tourism related, with commercial demand borne out of shipping, Kochi Port, Cochin Shipyard, oil refineries and marine and agro export industries based in the city. Banking, financial services, insurance and the telecom sectors have seen growth over the past two years.

Hyderabad

In Hyderabad, overall occupancy increased by 3.3 per cent. Average rates registered an increase of 13.4 per cent over the previous year. HITEC City, HITEX, Genome Valley and ICICI Knowledge Park demonstrate the state's commitment to create world class infrastructure. The convention centre opening in 2006, with approximately 75,000 square feet of conferencing facility and 55 break-out rooms, is the first of its kind in South Asia. The convention centre will induce substantial demand for rooms in the city. The Hyderabad market will continue to witness a strong increase in occupancy and average rate in the next few years.

Jaipur

Occupancy levels increased by 14.2 per cent in 2004-05 and average rates increased by 10.0 per cent over the previous year. Besides being a preferred tourist and wedding destination, the city of Jaipur is gaining prominence as a commercial destination as well. This is owing to increased travel by buyers for gems, jewellery and textiles. With the proposal for a Jaipur special economic zone (SEZ), an international airport and an ethnic village, the city will see development of new hotel projects (approximately 1,200 rooms). There is a chance of Jaipur facing an oversupply of rooms in 3-4 years.

Lucknow

Occupancy levels increased marginally by 0.6 per cent in 2004-05 and average rates increased by 10.0 per cent over the previous year. Lucknow has been a very stable market and is witnessing a rise in average rate for the last two years. Lately, Lucknow has also seen increased retail activity.

Nagpur

Nagpur witnessed a decline in occupancy by 10.1 per cent and a decrease in average rates by 5.5 per cent from the previous year. The Nagpur market has now declined for two years consecutively.

Thiruvananthapuram

The city witnessed a decrease in occupancy of 7.0 per cent, and a growth in average room rate of 38.6 per cent. Being the state capital, the city is a hub of political activity. Moreover, Thiruvananthapuram, with its famous beaches, is among the top tourist destinations in India. The city has grown as a tourist and commercial centre, with the international airport being one of the gateways into Kerala.

Udagamandalam (Ooty)

Ooty city has seen a decline in occupancy by 9.0 per cent and an increase in average rate by 15.6 per cent. Mainly a tourist destination, Ooty is known for its picturesque locales. The city is unlikely to see any major hotel activity in the next 2-3 years.

Udaipur

Citywide occupancy increased by 19.25 per cent in 2004-05. Average rate showed a steep increase of 53.65 per cent. The increase in the average rate may be partly attributed to the inclusion of luxury/heritage hotels in the survey. Udaipur has lately seen an increase in international events and is attracting many domestic off-site meetings, conferences and weddings as well.

Vadodara

Citywide occupancy increased marginally from 62.5 per cent in 2003-04 to 62.6 per cent in 2004-05. Similarly, the average rate increased from Rs 458 in 2003-04 to Rs467 in 2004-05. The Gujarat government has also been promoting the state as a commercial destination and is giving incentives to various companies.

Visakhapatnam

Visakhapatnam witnessed a steep increase in occupancy by 15.0 per cent in 2004-05 and an increase in average rates by 18.4 per cent. In the past, the city experienced rapid industrialization with the onset of major industries: an oil refinery, a large fertilizer factory, the Hindustan Zinc smelter and the Visakhapatnam steel plant.