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The new boom that's sweeping India
Sangeeta Singh | June 12, 2006
Boomtown Gurgaon has spends that step city New Delhi would envy, but it has (almost) no hotels -- little wonder that the highest room rate realisation in the national capital region is in Gurgaon's Trident Hilton, beating its luxury counterparts ITC Maurya Sheraton, The Oberoi, Taj Mahal Hotel, Hyatt Regency in the capital by far.
The Trident is a first-class international hotel, a euphemism for a three-star hotel (even though this property is at par with most five-stars); the others are established five-star hotels that would rather be referred to as seven-star properties.
Hotel rooms are hard to come by in Mumbai, and rentals can be astronomical by most standards. But it is Bangalore's Leela Palace that is the most expensive business hotel in the country, and if you arrive in the city without a booking, be prepared to pay the rate du jour, a whimsical rate of the day that you'll be hard put to explain on your expense account.
With guests outnumbering hotel rooms, and demand spiralling far ahead of supply, is it any wonder that travellers feel hotels are being opportunistic, making money while they can?
And is it any wonder that the same hoteliers seem to be spending more time with real estate developers (to sign land or joint venture deals) than on their services?
When international chains that have traditionally ignored India can't get enough of its market, funding is no issue at all (in the seventies, banks treated hotels on par with films as a risk venture), and the hotel boom could have a significant impact on India's total room capacity in the next couple of years.
Some numbers. In 2005, 3.92 million foreign tourists (this term includes business travellers) visited India, while the availability of "approved" hotel rooms was a mere 1,00,000.
For the ninth and tenth five-year plans, the Ministry of Tourism's official projection of hotel rooms is pegged at a conservative 1,25,000 (for an estimated 3.5 million foreign tourists a year). Indian travellers have not been factored in.
But with international air capacity into India increasing by leaps and bounds, and its markets pointing the future for companies and countries across the globe, get ready to be grounded unless the great room rush takes off.
But creating more rooms isn't the ministry's priority, and K B Kachru, executive vice president, South Asia, for Carlson Hotels (think Radisson), feels that the current gap, in spite of the building boom, will continue well beyond 2009 --' and even then, the demand supply mismatch will remain over 50 per cent.
Markets like Mumbai, Hyderabad, Bangalore and Chennai are buzzing. Chains can't seem to get enough rooms even in the same city. ITC, with two hotels in Chennai, is adding a third there.
The Oberoi group wants a third hotel in Delhi and is building a second one in Gurgaon (right next to its Trident brand). The Shangri-La, a recent entrant into the Indian market, is entering Bangalore with not one but three hotels.
Bharat Hotels' Lalit Suri (of the Grand chain) has staked out the under-construction 320-room, seven-star hotelfrom Balaji Hotels and Enterprises in Chennai.
Foreign player Accor has just about completed the 280-odd room Novotel in Hyderabad, Marriott commissioned a hotel in Chennai earlier this year, and will add Bangalore next month. It also has hotels coming up in Noida and Gurgaon. ITC subsidiary Fortune is staking out cities like Ludhiana, Siliguri and Vijawada in its current phase of growth.
The mall hysteria that had seized the real estate industry till recently seems to have transferred that delirium to hotels now.
And Mumbai offers ample reflection of this. Its hospitality market is booming with ITC, Trident, Ibis, Park Plaza, Sofitel, Four Seasons and Taj all set to start new hotels.
While the Oberoi Group's third hotel is coming up in the Bandra-Kurla complex, the Park group is actively looking at Navi Mumbai (and has begun work on a 300-room hotel in Hyderabad).
Four Seasons and Mandarin Oriental are both said to be part of the Mumbai rush, expected to last, according to analysts, for at least another five years.
According to a recent study by hotel monitoring body HVS International-India, while Hyderabad, Mumbai, Goa, Chennai, the NCR and Bangalore occupy top slot for hotels, emerging markets for the hotel industry include Pune, Cochin, Chandigarh, Ahmedabad and Vishakapatnam.
According to HVS data, while Hyderabad will need 8,000 rooms by 2009, supply will be more than 5,400 rooms. In Goa, demand by 2009 will be as high as 6,500 rooms, but supply will not cross 2,800 rooms.
In Chennai, the projected demand at 7,500 rooms will far outstrip supply at 5,000, and in Bangalore, while demand will be anywhere between 14,000-20,000 rooms, supply will not be more than 6,800 rooms.
"This is certainly boom time in terms of construction and investment in hotels in India," says Andrew Quinlan, general manager, Shangri-La, New Delhi, whose chain is targetting 8-10 hotels by 2010. Quilan has a point: This is the first time since 1995-96 that the hotel industry is experiencing growth of such magnitude.
And this time, the buzz around the entry of foreign players just won't go away. This is contrary to any developments -- so far. HVS analysts say money for the new hotels is coming through equity, debt and FDI. Private placement and joint ventures are playing a major role.
So far, FDI in the sector seems to be coming in through real estate buyouts rather than in hotel projects.
Mandeep Lamba, managing director, Dawnay Day India, says that though there's a lot of talk about foreign companies entering the market, no serious commitments have been made yet.
"Dawnay Day, with an initial $200 million investment, is probably the only player which has made its intentions clear," says Lamba. It plans 30 three- to four-star hotels in the next three to five years.
Certainly, there's talk of Starwood Hotels (which owns the Sheraton, Westin and Meridien brands) scouting around Gurgaon for a property it hopes will help it leapfrog into ownership and management control in India.
With Accor's first Novotel ready in Hyderabad, the company is working on its projects in Gurgaon, Bangalore and Pune. And Sofitel has firmed up plans for Mumbai. Carlson's K B Kachru says there are currently 26 hotels at various stages of development under the Carlson brands.
Eventually, though, it isn't a fight between foreign or homegrown chains as much as it is a struggle for marketshares.
The more the spread, the bigger the bite, and so Bharat Hotels "is definitely looking at offering 3,000 more rooms with plans for hotels in Chennai, Chandigarh, Jaipur, Noida, Hyderabad, Amritsar and other key locations by 2009," says Lalit Suri, chairman and managing director.
Riding on a wave of unprecedented room rate realisations, even summer occupancies continue to run high, upsetting the refurbishment plans of some city hotels traditionally taken up in the lean season.
Kapil Chopra, general manager, Trident Hilton, Gurgaon, says: "The hotel experienced an average occupancy of 91 per cent in May with an average room rate of Rs 11,800, a record price premium."
But what's the justification for their runaway rates? "It's all part of a business cycle," says Priya Paul, President, Park Hotels. "Don't forget that during a downturn we also reduce prices in order to keep the occupancy high."
Umesh Saraf, managing director, Unison Hotels, which owns The Grand (not to be confused with Lalit Suri's The Grand Intercontinental), adds: "Even at an average price of $250, Indian hotels are much cheaper than five-star hotels in the rest of the world that charge upwards of $400, and luxury hotels that charge over $550. In Paris, you will not get anything for less than €500."
All hoteliers say Delhi and Mumbai are world-class cities today, so there's no reason this should not be reflected in their hotel tariffs. They also say that business travellers are not complaining about the price.
While they're justfying hikes with add-on services, it would appear to make sense that hotel chains diversify their portfolios into a segment where there is a yawning gap --' mid-segment hotels.
But most hoteliers feel the economies do not support these, since the hotel-building industry in India is capital intensive. It's the reason Saraf is putting Rs 1,000 crore into hotel projects in Mumbai, Bangalore and the NCR --' all of them five-star.
Yet, mid-chain and even budget hotels have at least a few takers going for them. Accor, for instance, which has 4,500 economy hotels across the globe, or the Taj group's IndiOne that has morphed into the recently launched Ginger brand.
Ginger hotels (currently in Bangalore and Hardwar) is slated to launch a property every six weeks, and offer wi-fi systems, chic furniture, plasma TV, a tea kettle in the room and interntional toileteries at sub-Rs 1,000 rates.
"Its strategy? To get into areas that are cheaper and don't have competition. Launches are expected in Pimri (Pune), at IT Park in Trivandrum, and in Bhubaneswar and Mysore next.
Delhi-based InterGlobe Hotels, a joint venture between InterGlobe Enterprises and Accor Asia Pacific, plans to build 25 hotels under the brand Ibis in 12 years, five of which are already under execution. "Ranging between 150-215 rooms, Ibis hotels will focus on emerging cities like Gurgaon, Jaipur, Ludhiana and Jallandhar," says Uttam Dave, president and CEO, InterGlobe Hotels.
Others in the mid-segment are Sarovar, Easy Group, Country Inns & Suites and Indo-Asia Tours, the last set to have four-star properties with three-star tariffs (Rs 2,000-2,500) in tourist incentive destinations like Jaipur, Jodhpur, Coorg and Hampi.
On the other hand, Sarovar's no-frills Hometel hotels are commissioning in business locations Hyderabad, Pune, Mumbai and Chennai, and in newer destinations like Pushkar, Indore, Udaipur, Mussoorie and Baddi.
The logic is simple: with low-cost airlines, there is an inflow of budget tourists seeking rooms at more reasonable prices. The Rs 1,800 crore (Rs 18 billion) mid-hotel segment is expected to burgeon to Rs 4,600 crore (Rs 46 billion) by 2010.
At the opposite end of the spectrum are the Vilas hotels that belong to the Oberoi group, and which continue to win awards around the world for their service.
According to the company, the Rajvilas in Jaipur has had an extended high season till April. "It experienced almost 70 per cent occupancy against less than 60 per cent during the same month last year. Again, the Oberoi Amarvilas in Agra experienced a 15 per cent increase in occupancy since April last year," says a company spokesperson, reflecting the emerging importance of the leisure segment.
But with hoteliers and real estate developers all abuzz with hotel projects, is everything hunky dory in the land of pampering hospitality? Apparently not. Most in the industry crib about soaring land prices and getting the right locations in the cities.
"Land availability is a pre-requisite for a hotel to create room capacity. As most of the unencumbered land in cities is owned by the government, the Hotel Association of India (HAI) has taken on the task of trying to persuade state governments to consider creating land banks for ensuring availability of land at appropriate locations at reasonable prices," says Priya Paul, president of HAI.
Limitation to floor surface index (FSI) or floor area ratio (FAR) is another reason hoteliers cannot expand beyond a certain limit.
For instance, in Delhi and Mumbai, the FAR is between 1.25 and 1.75 (overseas, it can range between 5-15). With high land cost, especially in the central business districts (CBDs), there is a strong case for raising FAR limits, feel hoteliers.
According to Dave, the government will see serious bidders only when rates are reasonable. "Sometime back, the Delhi Development Authority had two to three rounds of auctions of properties in Delhi, but because the rates were so crazy, there were no takers," he says.
This is when the Commonwealth Games are round the corner, and also when Ministry of Tourism figures suggest that over 300 million Indians travel every year.
For the record, Delhi Development Authority auctioned four hotel plots for Rs 465 crore (Rs 4.65 billion) on June 6, soon after it had hauled in Rs 746 crore (Rs 7.46 billion) at another auction in March. The sites are all big plots and will in all likelihood be developed as five-star hotels.
Two of plots were bagged by Mumbai-based Asrani Inns & Resorts for Rs 127 crore (Rs 1.27 billion) and Rs 102.4 crore (Rs 1.024 billion) respectively. The DDA also managed to sell two other hotel sites at the Mayur Vihar District Centre for Rs 118 crore (Rs 1.18 billion) each. However, it could not find any takers for three sites at Shalimar Bagh, Shastri Park and Paschim Vihar.
There are many other issues that will dog the industry in the years to come, not least of which will be a severe manpower crunch. Which is why these figures might just be the jolt in the arm the government needs to take cognizance of an industry in its prime.
According to analysts, at its current strength the five-star hotel industry in India has a turnover of Rs 4,300 crore (Rs 43 billion). Add to this the mid-segment of Rs 1,850 crore (Rs 18.50 billion), which makes a total of Rs 6,150 crore (Rs 61.50 billion) (a large chunk of it in foreign exchange). This means that growing at an annual 8.5 per cent, hotels will earn Rs 7,855 crore (Rs 78.55 billion) in another three years.
Does that explain the frenzy?
With inputs from Ravi Teja Sharma.