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Cover Story
The great migration
Hospitality has checked out of its usual downtown address
and is slowly moving to SEZs, airports, malls and highways. Sanjeev Bhar
follows this migratory trail
 It
is little known that the word ‘motel’ is actually a fusion of 'motorist's
hotel' - a concept that evolved in the United States in the 1920s. From the
outskirts of towns, motels graduated to the highways where bleaming Cadillacs
crisscrossed the American landscape. This was a time of great opportunity for
the small-time hotelier.
Similar opportunities are surfacing back home - the Golden Quadrilateral is
nearly complete, greenfield airports are being developed, the government is
ready to roll out SEZs, and the term 'mall rats' has already been coined for
India's metropolises. The Indian hoteliers have begun their migration.
Taking the cue
Over the past few decades, the central business districts in metros have been
the hotbeds of hotel development. But space shrunk, demand grew and cities expanded.
Hotels opened doors in the next best destination in proximity to the airports.
Things have changed since. Today, emphasis is being laid on hotel developments
in remote places. In fact, hospitality and the surrounding infrastructure is
becoming a key ingredient for the development of a city, locale, or even specific
attraction points. It is this very infrastructure that is luring in hotels today.
Highways, airports, malls, SEZs are emerging as hotbeds of development. Would
there be ample demand to sustain their survival? Interestingly, while hotels
are a vital ingredient for the success of infrastructure projects, the industry
itself has not yet been granted infrastructure status.
The exodus of hotels from these areas is telling another tale - that of rapidly
escalating land prices. According to an ASSOCHAM Eco Pulse Study (AEP), an overwhelming
42.7 per cent of the total primary market funds will go to the real estate segment.
As per its study on 'Sectoral Analysis of IPOs' conducted for the period spanning
January 2007 to mid-December 2007, of the total, Rs 34,119 crore was raised
in this market and real estate emerged as the top sector in the primary market
with issues of 42.7 per cent of all IPOs in 2007 belonging to this sector.
What does this entail for the industry? Firstly, it has driven the budget and
the lower segments to the tops of malls where low prices and a captive audience
promise survival. Secondly, there has been an influx of real estate players
into the luxury segment with the motto of making hay while the sun shines. Thirdly,
it has attracted international players to dip in their tightly-held kitty to
invest in the business here. Finally, it has heralded the arrival of private
equity in the industry, opening the flood gates of investment for furthering
expansions. It makes economic sense.
Deconstructing SEZs
 Gopal
Krishna Pillai, secretary (Commerce), Ministry of Commerce & Industry, had
said that the response from Indian SEZs has been tremendous, while addressing
the session on 'Reality of SEZs' at the India Economic Summit 2007, organised
by the Confederation of Indian Industry (CII) and the World Economic Forum.
Perhaps he should have heeded the lull before the storm.
The government has already formally approved 404 SEZs of which 172 have been
notified. The SEZ Act 2005 was amended twice. This omitted certain regulations
and brought in single-window clearances. An incentive clause for sector specific
and multi-product SEZs makes hotel development attractive. Unfortunately, the
cap on the total number of rooms allowed has few takers; in sector-specific
SEZ a total of 100 rooms only and multi-product SEZs are allowed to have 250-rooms
hotels.
But going by an HVS survey, there is immense potential for mid-market, first
class and extended-stay products in SEZs depending upon its internal product
mix. Some hotel operators' initial reactions have been favouring budget hotels
since upscale hotels may not work in these locations. Therefore, there is skepticism
among bigger brands fighting for prominent SEZ spots, even in IT-designated
locations.
Taking flight
 Aviation
is the flavour of the season, and piggy-backing on this ebullience are hotels.
Hotels are being scooped up by the highest bidder, waiting at the wings to cash
in. MBD Group sold off its Kolkata airport hotel to Dharampal Satyapal (DS)
Group, which plans to revamp and renovate the hotel into an international standard
five-star hotel by 2008-09. The hotel will have a large convention centre and
banquet halls along with sprawling commercial space of over 3,00,000 sq. ft.
While spokespersons at Delhi International Airport (DIAL) hinted at airport
terminal hotels, Bangalore's BIAL (Bangalore International Airport) has a clear
vision on cards. It has selected the Oberoi group to operate a first-class international
hotel under the Trident Hilton brand. "This is just the first hotel; more
hotels will follow within as well as outside the airport premises in line with
the growth of air traffic," said a spokesperson. The 321-room hotel will
be a walk away from the terminal.
The combined investment committed by L&T and the Oberoi group is approximately
Rs 250 crore towards the design, construction, finance and operation of hotel
facilities. "A unique feature of this hotel is that it will have a check-in
counter at the airport terminal building and hotel guests will have the convenience
of flight check-in from the hotel itself. The hotel will offer F&B, conference
facilities, business centre and spa amenities as per international standards,"
informed the spokesperson. The hotel is expected to be operational by November
2008.
While metro airports will boast of new hotels soon, it is
not so the case in the northeast. Fifty airports/airstrips in the north-eastern
region by the end of the eleventh Five-Year Plan provide up to 600 flights per
week within the region but hospitality remains sidelined. Requesting anonymity,
a DONER (Development of North Eastern Region) official said, "The scope
for more airports in the region is immense and hence, a lot has been planned
out by the department. Simultaneously, this gives an opportunity to the hospitality
sector to build hotels but land being a state issue, is a hurdle."
Land sites for airport development fall under the jurisdiction of Airport Authority
of India (AAI) on whom the scope of airport hotels also rests. Development of
the airport region then will be the responsibility of the state government.
The source from DONER reveals that the department is funding
60 per cent of the entire airport project cost for the north-east region. Meanwhile,
DONER has initiated to bring in private sector to develop properties for which
it has inducted advisory firm IL&FS to carry out a study on hospitality
for the region.
| There are a total of 23 airports in the North-Eastern
region, out of which 11 are currently operational. These airports are Agartala,
Aizawl, Dibrugarh, Dimapur, Guwahati, Imphal, Jorhat, Lilabari, Shillong,
Silchar and Tezpur. The state government owns the airport of Lengpui and
Aizawl. The 12 non-operational airports are Along, Daparizo, Kailashahar,
Kamalpur, Khowai, Pasighat, Rupsi, Tezu, Tura, Turial, Ziro and Shella.
Now, the Airports Authority of India (AAI) is also planning to develop new
greenfield airports at Cheithu in Nagaland, Itanagar in Arunachal Pradesh
and one at Pakyong near Gangtok in Sikkim, Kokrajhar in Assam and Tawang
in Arunachal Pradesh. These will offer scope for accommodation facilities
provided private participation is called upon.
On the fast track
The Andhra Pradesh government in association with
the Roads & Buildings Department, under the public-private partnership
(PPP) model, will tap the immense potential of the mid-market hotel segment.
The State Department of Tourism has identified 34 locations in various
districts of the state where operations are expected to begin by 2009-end.
The escort officer of the department, Sandhya Rani, informed that the
project would be taken in a phased manner where budget hotels will be
set up on built-operate-transfer (BOT) basis. The technical modalities
of the project(s) would be as per the tourism policy and the government
land, located primarily in areas like highways, district bureaucratic
headquarters and major tourism sites, she informed.
Hotel companies have also initiated their ideas
about hotels on highways. Fortune Park now plans Adventure brand focusing
on resorts and highways. As part of its brand extension programme, it
launched the new brand for addressing the new set of clientele on highway
and this is supposed to become a big segment in near future. It has planned
two properties - one on Delhi-Gurgaon Road and another as lodges in rural
Madhya Pradesh. Further, Starwood Hotels & Resort opened its managed
property in India - Westin - at Sohna, Gurgaon, which is away from the
city yet connected to Delhi-Jaipur highway by an hour's drive. The mindset
of hoteliers is changing and they are cashing in on the demand arising
out of MICE segment where land is also conveniently poised for hotel development.
Mixed avenues
After food courts and restaurants in malls, it
is time for hotels to hop on the wagon of development. The business houses
are game for it owing to worries related to location choices, FSI issues,
FAR applicable to hotels and so on. Hotel in a mall sounds like a good
economic idea. It also opens up avenues to reach distant towns and cities
that never had five-star hotels.
One company that recognised this was MBD Group.
It started constructing a 130-room hotel in Ludhiana as part of its mixed-use
real estate project, where the hotel is stationed over a mall and multiplex
named MBD Neopolis. Sonica Malhotra, its executive director, says, "MBD
Neopolis is positioned to be a premium mixed-use development where the
idea is to offer a never-ending experience. Be it five-star hotel, retail
or entertainment, the final brand mix has lived up to our positioning."
Helmut Knipp, senior VP (Development), Langham
Hotels International, is of the opinion that cities like Delhi have to
bend towards mixed-use. "In a land-crunch situation, it becomes vital
to have good hotels and simultaneously all the necessary amenities like
retail, multi-level parking, etc for ensuring city's hospitality to grow
even further," he says. He goes on to say that hotels are a vital
proposition for a city these days.
At this point, a question arises whether hotels
under mixed-use are better than the standalone ones. Malhotra says that
mixed-use have definitive advantages as it works on utilising space to
optimum in terms of cost to revenue realisation. "The FSI available
could be exhausted only by going more than the second floor. The ground
to second floor could be used for retail beyond which a suitable product
option could be put in," she explains. In case of MBD Neopolis, the
lower ground, ground, first and second floor are used for retail and the
balance FSI is used for a five-star hotel.
Mixed-use developments, especially a combination
of retail, entertainment and hotel, also works well. Bipan Kapur, GM of
Westin Sohna-Gurgaon Resort & Spa, is of the opinion that mixed-use
developments are vital for cities where land costs are high. Westin is
also going to establish hotels in Cyberabad, Pune and Kolkata that will
be part of mixed-use developments. On the other hand, Malhotra feels that
mixed-use has nothing to do with the land crunch. "It is based on
the best use of the FSI permissible. But yes such developments fetch better
margins compared to single-use developments when single-use is not advisable
owing to cost-benefit analysis," she adds. Even with regards to break-even
period, the best possible use of FSI is mixed-use.
With inputs from Praveen
K Singh (New Delhi) and Joy Roy Choudhury (Kolkata)
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