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Hotels: Where to from here?

Jun 13, 2007

The hospitality industry of the country is at a high growth pace. The demand is exceeding the industry's supply. With tourism industry showing excellent performance, in terms of foreign tourists arrival, hospitality industry, is poised to grow at a faster rate. During 2006, 4.4 m tourist visited the country. The figure is up 13% from that of 2005. This has led to high demand thereby increasing the occupancy rates to 71% and the room rates up 44% since 2001.

Demand for hotel rooms is soaring as Indian economy is growing. Not only for business deals and conferences, but also as a tourist hub foreigners are flooding the country. The rise of low-fare airlines is also bringing domestic air travel within reach for more Indians leading to high domestic tourism. At the same time, this high growth is placing strain on the country's infrastructure, and in particular airports and hotels, where supply is overwhelmed by demand. India has only 110,000 hotel rooms, while China has 10 times more, and the United States 40 times more. The shortage of rooms led to higher room rates. Comparing rooms of similar quality, a room in Delhi cost US$ 187 on an average versus US$ 122 in Beijing, while a room in Mumbai was US$ 178, versus US$ 150 in Shanghai. According to Crisil, while demand grew by 11% in 2006, 15% growth in 2007 and continuation of this annual rate up until 2010 is expected.

Movement of average room rates in star hotels in India
 2001-02 2002-03 2003-042004-052005-06
Five star deluxe 4,668 4,335 4,686 5,606 7,099
Five star 3,277 3,114 3,372 3,897 5,019
Four star 2,368 2,246 2,580 3,088 3,799
Three star 1,696 1,669 1,670 1,830 2,044
Overall average3,467 3,269 3,569 4,299 5,318
Source HVS International

While the demand for additional rooms in five years will be 1,40,000 to 1,50,000 rooms, the additional supply will be 60,000 to 70,000 rooms only. The undersupply of rooms has been a key driver of the Indian hotel market. According to market data from HVS International, the room supply grew by 4% in 2006 and is expected o grow by 7% from 2006 to 2007. The shortage is attracting some of the world's best-known names in hotels like Accor, Hilton, Wyndham and Pan Pacific to India. The government is also seriously considering promoting the hospitality industry. Measures like creation of land banks and freeing land supply, declaration of a conditional ten-year tax holiday for all tourism projects in the country are been planned by the government.

Expected room supply by 2008 in top 10 key hotel markets in India
City LuxuryFirst classMid marketBudget Total
Delhi/NCR 2,449 2,659 4,264 1,484 10,856
Mumbai2,866 2,697 2,485 1,270 9,318
Kolkata275 725 1,225 240 2,465
Chennai1,235 1,675 1,017 480 4,407
Bangalore2,503 1,300 2,883 1,108 7,794
Hyderabad1,885 2,549 1,579 1,395 7,408
Pune470 1,767 1,454 927 4,618
Goa325 1,147 675 485 2,632
Kochi NA 400 335 330 1,065
Jaipur324 1,005 720 721 2,770
Total new supply12,332 15,924 16,637 8,440 53,333
Source HVS International


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