The new boom


Gurgaon has spends that step city New Delhi would envy, but it has (almost) no hotels. It is a little wonder that the highest room rate realization 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.

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 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 spiraling far ahead of supply, the travelers feel hotels are being opportunistic, making money more than the value provided.

That is why 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.

In 2005, 3.92 million foreign tourists (this term includes business travelers) visited India, while the availability of “approved” hotel rooms was a mere 100,000.

For the ninth and tenth five-year plans, the Ministry of Tourism’s official projection of hotel rooms is pegged at a conservative 125,000 (for an estimated 3.5 million foreign tourists a year). Indian travelers 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. It is expected 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’ (of the Grand chain) has staked out the under-construction 320-room, seven-star hotel from 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 Vijayawada 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. The Oberoi Group’s third hotel is coming up in the Bandra-Kurla complex. 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.

This is certainly boom time in terms of construction and investment in hotels in India. This is the first time since 1995-96 that the hotel industry is experiencing growth of such magnitude.

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.

Eventually, though, it isn’t a fight between foreign or homegrown chains as much as it is a struggle for market share. The more the spread, the bigger will be the bite.

Riding on a wave of unprecedented room rate realizations, even summer occupancies continue to run high, upsetting the refurbishment plans of some city hotels traditionally taken up in the lean season. 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.”

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 euro500. 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 travelers are not complaining about the price.

But most hoteliers feel the economies do not support these, since the hotel-building industry in India is capital intensive.

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 international toiletries at sub-Rs 1,000 rates.

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.

But with hoteliers and real estate developers all abuzz with hotel projects, everything is not hunky dory in the land of pampering hospitality. 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. Limitation to floor surface index (FSI) or floor area ratio (FAR) is another reason hoteliers cannot expand beyond a certain limit.

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.

In conclusion the merging economy is making its impact on business and tourism traffic which in turn is creating the great demand for hotel rooms. This could not be anticipated even by the most seasoned hoteliers because the growth of economy in India seems to be much faster than expected. The private sector and hotel chains both national and international definitely capitalize on the opportunity and come out with providing more hotel rooms for the hospitality industry reducing the demand supply gap as much as possible.