Buoyant outlook for Indian hotel sector
Knight Frank Research has recently released its India Hotel Review of the hotel sector in the country. Express Hospitality presents this review in three parts.
The phenomenal growth of the service sector has had a direct impact on the real estate sector. According to Knight Frank estimates, close to 100 mn sq ft of office space will be developed in the country over the next two years, 80 per cent of which will be taken up by the IT/ITES sector. Besides this, approximately 120 mn sq ft of mall space will come up in the market by 2008. Another segment which is benefiting from the growth of the service sector is the hotel industry. Liberalisation of the Indian economy coupled with the growth in domestic business and a buoyant economic outlook has led to an enhancement in business travel in India.
According to Government of India estimates, the foreign arrivals in India increased by 11 per cent between 2004 and 2005 and by 15 per cent between 2005 and 2006. More than 50 per cent of this number are foreign business travellers. Besides this, approximately 300 million domestic travellers traverse the country each year and this number is expected to witness a growth of 10-15 per cent over the next few years. Also, the efforts made by the ministry of tourism & culture in the last few years have had a salutary effect on India's tourism industry. As per a survey undertaken by an international travel magazine in 2006, India has been ranked as the 4th most favoured country for holidays, above South Africa and Switzerland. Coupled with this, availability of low cost medical facilities and the introduction of low cost airlines are all expected to generate increased demand for hotel rooms across many cities in India.
National Capital Region (NCR)
NCR, including the national capital New Delhi and the satellite towns of Faridabad, Gurgaon, Noida and Ghaziabad, is a prime economic zone of India. A great historical past, gateway to the northern India hill stations, excellent national and international connectivity makes the region one of the most favoured destination for trade, commerce, politics and tourism.
Rapidly improving infrastructure, widespread economic activities, availability of skilled manpower and decentralisation policy of urban development has triggered offer further growth of the NCR. Widening of national highways and expressways, launch of the Delhi Metro Project and growth of the IT/ITES sector have also contributed to the boom in the real estate sector which had led to increased business trips to the capital.
The growth of the industrial and service sector in NCR had led to a surge in demand for star category hotels and this has had a positive impact on the hospitality business. Besides being a major transitional point for international and domestic tourists, the region also witnesses an inflow of both business and leisure travellers. This is unlike other metros, which predominantly host business travellers. Foreign business travellers form around 70 per cent of the corporate clientele of the hotels in NCR.
Current scenario
Over the last few years, tourism in NCR has grown to include heritage tourism, adventure tourism, medical tourism and eco-tourism. Various segments, including the domestic as well as international corporate travellers, bureaucrats, sportsmen as well as transitional tourists are the main clientele for the hospitality sector. New Delhi, as the nation's capital, regularly hosts various political meets and also contributes to the demand for hotel rooms in the region. Healthy industrial growth and better infrastructure, conducive for trade events, have surged the business traffic, which has accelerated the demand for business hotels.
The current room inventory in all the categories in NCR is around 9,982 of which the premium category hotels constitute around 85 per cent or 8,532 rooms. The list includes names like ITC Maurya Sheraton, Shangri-La, Trident and Taj Mahal Palace in the five-star deluxe category, Oberoi, Uppal Orchid and Imperial Heritage in the five-star category, while the four-star category includes Hotel Janpath and Hotel Kanishka.
Between 2003 and 2005, the average occupancy rate in the NCR hotels grew from 70 per cent to 78 per cent. At present, the occupancy rate is about 83 per cent. Average Room Rate (ARR) in the region has gradually increased from Rs. 4,200 in 2003 to Rs 5,200 in 2004. However, ARR is expected to grow manifold and touch Rs 10,000 by end-2007. Room rents contribute almost 60 per cent of the total revenue generated in the hotels while the Meetings, Incentives, Exhibitions and Conferences (MICE) segment accounts for approximately 15 per cent of the total revenue. The share of Food & Beverage (F&B) sector is limited due to competition from local restaurants and food chains.
NCR is expected to see many new hotels, service apartments and mixed-use developments over the next 3-4 years. Close to 25 new hotels are coming up in Gurgaon alone. Tie-ups with international players like Hillwood with Hyatt, Emaar with Accor and DLF with Hilton is expected to give a push to the hotel industry in NCR.
With the upcoming Commonwealth Games to be held in New Delhi in 2010, NCR is expected to witness the inflow of around 0.8 million international tourists and nearly 3.6 million domestic tourists. To accommodate these visitors approximately 30,000 rooms will be required in 2010. Around 6-8 hotels have been additionally planned for athletes in the Games Village, in the vicinity of the Commonwealth Games site in East Delhi.
Due to the availability of larger land parcels and proximity to expressways and ring roads, new hotels are coming up in the peripheral locations of the city. Majority of the new supply is coming up in the business hubs of Gurgaon and Noida. In the next couple of years, Noida will have additional 24 hotel projects. Once the upcoming Medicity at Gurgaon is operational, the location will become a global health-care destination and this will further give a boost to the demand for hotel rooms. Knight Frank Research indicates that over the next few years, the supply of hotel rooms in NCR will cross 17,500. Out of this, around 5,100 rooms are currently under construction and the rest in planning stages at various locations around the region.
To meet the long-stay demand from the corporate segment, service apartments have mushroomed in the NCR at a frenzied pace. According to Knight Frank Research, approximately 1,000 service apartments will be available in the region by 2008. Among the local developers, Enkay was the first developer to initiate this concept in New Delhi. Major hotels groups like Marriott, Oberoi, Oakwood, Westin, Leela, Claridges and Crowne Plaza are also planning service apartments in NCR. Besides these, many smaller and unbranded service apartments are also coming up in Gurgaon and Noida. These also clock a year-round occupancy and an average stay of 2.5 to 3 weeks, reflecting the high demand for such developments.
Due to high land cost and with a view to mitigate risk, the concept of hotels in malls is also flourishing Budget hotels in malls which offer shopping experience with entertainment facilities under one roof are eliciting attention from various hospitality players. An upcoming five-star hotel in East End Mall in Ghaziabad is one such example.
Outlook
Entry of international brands and players, international events and multi-national companies setting up and expanding operations has driven the growth of hospitality business in NCR. Soaring land prices and substantial initial investment are not longer the deterrents for this sector. Due to encouraging government policies like entitlement to duty-free imports floated by the government, the segment has availed considerable capital in the market. Recent transactions while auctioning the hotel plots, at prices which are three-fold of the reserved prices, show growing interest of investors in the region.
A five-year tax holiday announced in the recent budget by the finance ministry for two, three and four-star hotels and convention centres specifically catering to the Commonwealth Games in Delhi, Gurgaon, Ghaziabad and Faridabad is expected to initiate more hotel groups to venture into this real estate segment.
With the advent of international players, the NCR market is expected to grow towards global standards. Public private sector initiatives, undertaken in joint venture with developers like Unitech and Parsvanath, in order to promote entertainment and tourism industry along with infrastructure development in a diversified quantum has set the region to witness growth in the hospitality sector in the forthcoming years.
Jaipur
Jaipur, the capital of the state of Rajasthan, is a growing business centre of North India. The city offers an array of attractions ranging from historical monuments and palaces, parks and gardens, gems and jewellery business to emerging IT/ITES destinations. The city's age-old charm along with growing modernisation makes it an interesting package for a traveller.
Together with the north Indian cities of Delhi and Agra, Jaipur is the third city of the `Golden Triangle'. It has been one of the key tourist destinations of India and has the unique flavour of traditional hospitality of the regal empire. Excellent connectivity to New Delhi through rail, road and air has cemented Jaipur's position as a leading tourist location of the country.
In the last 2-3 years, Jaipur has undergone substantial changes which have altered the real estate landscape of the city. Low operational costs, availability of labour at economical rates, low attrition rates due to lack of regional competition have induced many IT/ITES companies to explore the city. As a result, the residential, office and retail sector real estate have seen unprecedented growth. Large-scale projects like the Mahindra and Mahindra SEZ, Vatika City, Pearl City, Omaxe City and many other corporate parks and malls are being developed around the city.
Current scenario
Major demand drivers for the hospitality sector in Jaipur are heritage tourism and cultural tourism. Festivals like Dusshehra, Pushkar Mela and Diwali take place in October and November and these months comprise the peak season for tourist arrivals. Around 67 per cent of the total tourists coming to the city are international travellers whereas domestic travellers constitute 33 per cent. The government has taken positive steps to promote tourism and to bridge the gap between demand and supply for tourist amenities including accommodation and leisure activities.
Penetration of the IT industry in Jaipur has given fillip to business tourism as well. A demand for business hotels with facilities such as convention halls equipped with presentation equipments, board rooms and lounges has been observed in the city. Jaipur has also been a favourite destination for marriages and theme parties and this also contributes to substantial room demand during the period September to March.
The total inventory of the hotel segment in Jaipur in all the categories is about 2,655 rooms. Of this, approximately 1,144 are in the five and five-star deluxe category, 352 in the four-star category and around 367 rooms in the heritage category. Some of the major hotels include Hotel Rambagh Palace (Bhawani Singh Road), Le Meridien (Delhi Road), Rajputana Palace Sheraton (near the railway station) and Country Inns & Suites (MI Road) in the five-star and five-star deluxe category, Hotel Gold Palace & Resorts (Delhi Road) and Fortune's Bella Casa (Ashram Marg, Tonk Road) in the four-star category and Raj Mahal Palace (Sardar Patel Marg), Raj Palace (Amer Road) in the heritage category.
The occupancy levels that were around 61 per cent in 2004, increased to 63 per cent in 2005 and to about 65 per cent in 2006. Significantly, Hotel Jai Mahal Palace enjoyed the highest occupancy rate of 72 per cent in December 2006.
It is expected that the occupancy rates for hotels in Jaipur will continue to move upwards as the clientele from the corporate sector is expected to increase.
ARR values have increased by 27 per cent during 2005 to around Rs 6,500 from Rs 5, 100 reported in 2004. Hotel Raj Vilas recorded the highest ARR of Rs 15,332 for the year 2006 while overall the premium category hotels in Jaipur achieved an ARR of around Rs 7,200 in the same year. The demand supply imbalance observed during the peak season has enabled hotels in Jaipur to charge higher tariffs across market segments. With a nominal 3-4 per cent p.a. increase in supply, ARR is expected to grow at a rate of 25-30 per cent in the next 2-3 years.
As per industry estimates, 56 per cent of total hotel revenue is generated by room rents whereas F&B contributes 26 per cent and convention and banquet halls each contribute approximately 8 per cent. Due to the presence of organised tour and travel operators, the international airport and introduction of new tourist attraction concepts like Elephant Safari (Haathi Gaon), the city is bound to witness growth from budget to premium-end clientele in hotel segment.
Strengthening of Jaipur as major tourist destination and a potential destination for business travellers has induced foreign players like Amanda, Satinwoods, Banana Tree, Hampton Inns, Hilton and Mandarin Oriental to consider the city for setting up new hotel projects. Hyatt has Jaipur on its priority list for establishing its resort as well.
Other players like Mahindra Group is developing a five-star hotel while InterGlobe, in a joint venture with Accor, is setting up a 500-room budget hotel in Jaipur, which will be operational by 2008. The construction for another budget hotel by The Lemon Tree has already started at World Trade Park on Jawaharlal Nehru Marg in Jaipur. An International Convention Centre is proposed in the city and is to come up within the next 18 months. A distinct market of hotel-cum-mall segment is also emerging in the city. Fortune Group's Bella Cassa, with an inventory of 57 rooms has been developed on the same concept.
Outlook
Out of the Rs 200 billion investment envisaged in Rajasthan, Jaipur is expected to receive a major share which will be invested for improving social infrastructure and amenities within the city. Better connectivity to the city on account of low-cost airlines has led to increased consideration of the city as a venue for conventions and marriages. It will further augment the share of room revenue in the total revenue generation pie and also create new demand for rooms.
The New Hotel Policy 2006 gives special provisions for development of hotels in Jaipur. The policy includes reservation of land parcels for hotel projects within the city, availability of hotels plots at a dropped reserved price (almost 50 per cent of commercial reserved price), 100 per cent exemption on entertainment tax and 100 per cent exemption from land conversion charges. All these provisions are expected to increase the supply of hotels in the city. Delhi Road due to the development of industrial parks, Ajmer Road on account of development of integrated townships and SEZs and Tonk Road owing to new commercial developments, will be emerging destinations for new hotel projects.
Jaipur, with its historical charm, will continue to attract international tourists and reap profits on the growing hospitality business. With the city emerging as a major centre for gems, jewellery and textiles, increased business for the hospitality segment will be coming in from this commercial segment. However, a supply of approximately 1,080 rooms over the next few years may create a situation of over-supply in the Jaipur hospitality market.
Kolkata
Kolkata, the capital of West Bengal is the second largest city of India and an erstwhile trading and commercial capital of the country. Various industrial set-ups including engineering products, leather, steel, automobiles and pharmaceutical companies together with banking and insurance companies have had a significant impact on the economic growth of the city. Kolkata is also the commercial capital of the north-eastern region with most companies having their regional offices in the city.
The emergence of Kolkata as a popular new economy destination due to its advantages of comparatively low manpower and real estate costs coupled with the existing industrial set-up have had major impact on the real estate sector of the city. Geographically, too, the city has grown outward in all the directions with major development along the eastern, southern as well as western locations. The growth of the IT/ITES sector in the city is also triggering a growth phase in retail, hotels and residential properties. Kolkata, which earlier had only a few hotel brands, has seen a change of face with the emergence of the new age companies in the city.
Connectivity from Kolkata to other Indian and international destinations by air is improving with the addition of new airlines. As the only metropolitan city for the entire eastern belt of the country, Kolkata has an extensive network of road and rail transportation facilities.
Current scenario
In recent times, the city's booming IT sector has led to the rise in demand for hotel rooms. There has been a substantial increase in the demand for good quality short-stay accommodation from Indian as well as foreign executives, as business in the city has improved after a lull of almost two decades. Almost 60-70 per cent of guests in the premium category are business travellers, with the airline crew contributing another 8-10 per cent to the total demand. The travellers to the city are mostly domestic but recently the share of international travellers has gone up and most of the premium category hotels have an average of 40 per cent foreigners as their clientele.
Currently, there are around 25-26 hotels in various categories operating in Kolkata. The current inventory in the premium category is around 1, 476 rooms, which is around 85 per cent of the total rooms in Kolkata. Most of the hotels like Taj Bengal, Oberoi Grand, Hotel Hindusthan International as well as The Kenilworth Hotel are located in the CBD and hold the advantage of location and accessibility. Other hotels like Hyatt Regency Kolkata and ITC Sonar Bangla Sheraton Hotel and Towers in the eastern part of the city, cater to the upcoming new business sectors along the Salt Lake and Rajarhat stretch.
The occupancy levels in the city hotels have increased at an average annual growth rate of 15-18 per cent since the last few years. The current average annual occupancy level of the city hovers around 80 per cent and is expected to remain at the same level for the next two years. Low ARR figures in 2001-03 were steadily recovered in the last few years due to emergence of the IT/ITES sector, the change in the ARR of a city being the indicator of the quantum of business activity. The premium category hotels currently have an ARR of Rs 4,100 - 5,000 with five-star deluxe hotels touching around Rs 12,000 in the recent past.
Kolkata is becoming a preferred location for conferences and seminars due to the relatively easy availability of space at a lower cost as compared to other metros. Banqueting facilities in hotels witnessed a booking level of almost 80 per cent in 2006 with larger demand from the corporate companies as compared to private functions. Facilities like spas have a good demand in Kolkata as five-star deluxe hotels like the Hyatt Regency, ITC Sonar Bangla as well as Oberoi Grand have exquisite spa facilities, most of them catering to in-house guests as well as local residents.
Tourism takes a backseat in the room demand for hotels, as this segment in Kolkata is fairly seasonal. A minimal 20 per cent of the demand can be attributed to foreign as well as domestic tourists in Kolkata. While rooms in the premium category contribute to almost 62 per cent of the net revenue, the MICE segment contribute almost 15 per cent of the net revenue generated in hotels in Kolkata.
The horizontal expansion of the city limits in the eastern and north-eastern part of Kolkata, including Rajarhat and Salt Lake, has seen many global IT companies setting up operations here. The proximity to the airport, availability of large land parcels and upcoming industrial set-ups has fuelled the demand for hotels to be located in this region. According to industry experts, Kolkata will witness a new supply of around 2,000 - 2,200 rooms of which approximately 80 per cent will come up in this region.
At least 12 new hotels and serviced apartments will be entering the Kolkata market over the next few years. While few hotels like The Fort Radisson have expansion plans within their current facility, hotels chains like Intercontinental Group, Marriott Hotels and Resorts, Hilton Group, Peerless Group, Sarovar Hotels, as well as DLF in joint venture with Dubai-based Emaar Group are setting up five-star and five-star deluxe properties in the city. On the other hand, hotels, like Grand Great Eastern Hotel as well as MBD Airport Hotel are currently under renovation and are expected to add to the upcoming supply of rooms.
Outlook
The service apartment segment in Kolkata has still not been explored, but as the market matures, the demand for medium to long-term stay options would increase. The continual demand from the IT/ITES segment together with the manufacturing and processing industry will further strengthen the demand for this segment in Kolkata. Few hotel groups like Intercontinental Group too have plans to set up service apartments in Rajarhat. The concept of mall hotels, combining a star category hotel within a mall and multiplex, was initiated with a 130-room star hotel at City Centre Mall, at Rajarhat.
Kolkata is currently undergoing an economic resurgence with the West Bengal government providing aggressive incentive packed steps to attract investments. The government has identified IT as priority sector to be developed into a growth engine for the future. With its improving infrastructure, low cost of operations and a proactive state government, Kolkata is well positioned to benefit from this growth in ITES services. The promotion of large-scale IT and non-IT industries in West Bengal will further enhance the demand for hotel rooms. Also large townships in various parts of the city planned by the government, in joint venture with developers, have hotels within their projects.
