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Rising costs drive hotel cos into malls

October 11, 2007 08:56 IST

Rising real estate costs and lack of good locations in cities are driving hotel companies to rent space in malls and other commercial complexes.

For instance, Accor Hotels is in talks with mall developers to build its Formulae 1 brand of budget hotels at the topfloor of malls in tier I and tier II cities.

Similarly, Ginger Hotels has signed its first hotel which will be on the top floor of a mall in Ludhiana. The hotel company has signed three similar contracts in Amritsar, Mohali and Ahmedabad.

On the other hand, developers like Phoenix Mills and DLF, too, plan such hotels in various cities. Phoenix Mills has planned one hotel each at its four shopping complexes - called Market City - in Pune, Bangalore, Agra and Kurla (Mumbai).

DLF has also talked about building a luxury mall-hotel on the Mumbai Mill property it had acquired last year.

Shishir Shrivastava, CEO, Phoenix Mills' hospitality division said: "This is a concept that hotels have been following worldwide and is just catching up in India. The hotels are keen on it as they do well in the vicinity of a commercial hub."

Adds an analyst, "It is a win-win situation for both the hotelier and the mall developers and owners. While the hotel gets off the ground quickly, the developer is keen on finding business where they can rent out a large amount of space at their malls."

What works in favour of the hoteliers is the cost factor. For instance, a 100 room stand alone Ginger hotel will cost the company (excluding the variable cost of the land) anywhere between Rs 13-15 crore  (Rs 130-150 million)- 30 per cent more than what it would cost it over a mall which would be anywhere between Rs 9-11 crore (Rs 90-110 million).

The general model where these hotels operate are by taking on rent the top floors of the mall. While the hotel sits on top, the low level structure will have a high end retail area which will be open to visitors in general. These hotels will have a separate driveway, entrance and elevators for their customers.

Says Prabhat Pani, CEO, Ginger Hotels, "Hotel at malls are a value add to the customer considering malls provide with wide range of food and entertainment options to its customers which saves us from spending on real estate cost for separate food and beverage outlets or a restaurant unlike at our other properties."

In such an arrangement, the hotel works out on the floor plan with the developer before he begins construction of the mall. In many cases, like that of Ginger, the hotel puts the civil structure of the hotel in place and suggests on the exteriors.

While analysts say, budget hotels are feasible to have on these malls as they are no-frills brand, Phoenix Mills is looking at having luxury hotels.

Shangri-La, a five-star luxury hotel is taking shape atop Phoenix Mills' mall in Mumbai and the company is looking at having more such luxury hotels in this model.

Kalpana Pathak in Mumbai
Source: source