HOTELS IN INDIA— TRENDS & OPPORTUNITIES

2007 Edition

This edition has been published by the New office of HVS Hospitality Services. www.hvs.com

Introduction future opportunities for the hotel developed in major cities over the HVS has been in the forefront of industry across key markets in next five years. For each city we providing strategic advisory for India. As always, apart from have presented the number of virtually every major industry conducting specific research for new hotels under various stages participant for the past 11 years. this publication, we have of development, their market Having reviewed the market included macro data provided by orientation and suggested the performance for over a decade, the Department of Tourism. The active development ratio. As in it has been particularly publication briefly discusses the previous editions of this report, interesting to observe and draw tourism industry in India in the we have, once again, presented statistical co-relation on context of the present economic our assessment of industry trends benchmark performances, scenario and presents the results and development opportunities; market segments and demo- of our survey on the performance this is included as part of the graphic customer profiles for the of mostly branded hotels, ‘Future Trends’ section. Detailed industry over the long-term analysed by each segment of the analysis of new hotel supply has horizon. This eleventh edition of hotel market, as well as by major allowed us to predict the kind of HVS’s Hotels in India - Trends and cities. man-power requirements the Opportunities publication country needs to just match up provides us with a unique The hospitality boom in India is to the expected growth. opportunity to understand led not only by the buoyancy in industry dynamics through the Indian economy, but also by In addition to this document, we twelve years of performance the supply-demand imbalance publish The Indian Hotel Industry trends representing periods of that currently exists in most Survey on an annual basis, in peaks and troughs. cities. Therefore, in the 2007 edition we have focused association with the Federation The article also assesses current extensively on the quantum and of Hotel & Restaurant trends and presents our views on classification of new hotels being Associations of India (FHRAI). This publication, the only one of Table 1: Number of Respondents its kind in India, provides 400 400 detailed financial and operating information on the hotel 300 300 industry, analysed by star category, across all major cities in the country. The next edition 200 200 (2006/07) will be available by the end of the year.

Number of Hotels 100 100

Number of Rooms (00's) This year, a record 268 hotels with a total of 34,784 rooms, partici- 0 0 2001/02 2002/03 2003/04 2004/05 2005/06 2006/07 pated in our survey. Table 1 illustrates survey participation for Number of Rooms (00's) Number of Hotels Average Number of Rooms Per Hotel the years 2001/02 to 2006/07.

HVS Hospitality Services Hotels in India - Trends & Opportunities 2001 1 The Indian Economy - An population and plays an Business Services witnessed a Overview important role in the Indian slowdown, growing by 10.6% in Rapid growth and strong macro- economy, volatility in agricultural 2006/07 as compared to 10.9% economic fundamentals have production has serious recorded in 2005/06, as per characterised developments in implications for the country’s independent sources. the Indian economy in the past overall growth as witnessed with financial year. GDP is estimated regards to inflation in the last The inflation rate at the beginning to have grown at a robust 9.4% financial year. of 2006/07 stood at 3.9% with an during 2006/07 as against 9.0% upward trend through the year in 2005/06. The only time the The industrial sector, improving ending at 6.9% in March 2007. economy has grown faster was in consistently over the last five Inflationary pressures may be 1988/89. This acceleration in years, grew at 11.1% in 2006/07 attributed to both demand and growth rates was led by propelled by the robust growth of supply trends. According to the Industrial and Services sector the Manufacturing sub-sector Reserve Bank of India (RBI), activities, which exhibited (12.3% in 2006/07). According to demand pressures stemmed from double-digit growth. Increase in the Economic Survey 2006/07, elevated asset prices and high tourist arrivals and visits, Industry had never consistently investment and consumption augmentation of grown at over 7.0% per year for demand, while supply side telecommunication services, more than three years in a row pressures emanated from low escalated development in before 2004/05. This sustained domestic production of major Information Technology (IT) & IT growth has led to increased food grains amidst rising global enabled Services (ITeS) and investments and efficiency in prices. Using the various improvement in the financial utilization of capital. It is believed instruments at its disposal, the services sector has kept the that the Industrial sector would RBI has tried to contain the Services sector buoyant in recent have performed better had the inflation in this financial year years. Maintaining the trend Mining and Quarrying sub-sector effectively and aims at containing highlighted last year, this sector achieved higher growth. it at below 5.0%. continues to be a major demand Electricity, Gas and Water supply generator for room nights in most grew by 7.2% in 2006/07 as Furthermore, 2006/07 saw the of the primary cities and against 5.3% in 2005/06. The Indian rupee gaining strongly increasingly in the secondary Construction sector, though a against the US dollar. The Indian cities of India. The impact on major propeller of GDP, showed rupee stood at 44.9 to the US travel expenditure budgets by the a decline as compared to last year dollar in April 2006, after which IT sector due to recent pressures because of rising interest rates. it gained strength and touched on margins owing to rupee 43.1 by March 2007 averaging to appreciation is also likely to The Services sector showed a 43.6 for the previous financial influence demand in the short to healthy growth of 11.2% in 2006/ year. We expect the currency to medium term. 07 as compared to 9.8% in 2005/ remain strong in the short term 06 benefiting from the availability as it is being driven by capital Growth in Agriculture and Allied of skilled labour. Trade, Hotels, flows and strong demand for activities decelerated from 6.0% Transport and Communication exports. To substantiate the in 2005/06 to 2.7% in 2006/07 continued to develop at an above, the Indian rupee has resulting in its declining share in accelerated pace recording a remained on an upward the overall GDP of the country. growth of 13.0% during 2006/07 trajectory ranging between 39.0 This was attributed to uneven as against 10.4% in 2005/06. and 41.0 against the US dollar in rainfall, low investment, Community, Social and Personal 2007/08. imbalance in fertilizer use, Services continued to expand at distorted incentive system and 7.8% in 2006/07 showing Going forward, this financial year low post-harvest value addition. marginal increase over the has witnessed the adoption of a As this sector still employs a previous financial year. Financial, single currency system by substantial section of the Insurance, Real Estate and hoteliers across the country due

2 Hotels in India - Trends & Opportunities 2001 HVS Hospitality Services to the weakening of the dollar been lagging behind the world in merged. also against the rupee. It is believed promoting exports through aims at using this ally to fly that there is more value for money Special Economic Zones (SEZs), abroad in case the government earned in rupees resulting in a it is slowly catching up owing to does not relax the five-year decision to price hotel services in the considerable change in the domestic operation norm for rupees. Foreign customers government’s outlook and Indian carriers. however, are given the option to policies towards SEZs. The SEZ settle their bills in an international Act 2005 along with the two Low fare airlines, namely, Air currency. amendments (August 2006 and Deccan, SpiceJet and GoAir and March 2007) has led to certain other existing airlines have A well-performing global regulations being done away increased their frequency of economy has provided an with and the process of starting operations in the existing environment within the country, a business has been simplified by domestic sectors and started which is conducive to develop- bringing in the single window flights to new sectors also. New ment. Purely for monetary policy clearance policy. The policy low fare airlines namely IndiGo purposes, the RBI - in its Annual allows 100% FDI in most and Indus Air have also started Statement in April 2007 - has manufacturing activities and the operations in 2006/07. positioned the real GDP growth government is also looking at Cumulatively, all the players in removing sectoral FDI caps in all this sector have contributed for the current financial year at sectors for units located in SEZs. significantly towards domestic air around 8.5% exclusive of any Most of the SEZs in the country passenger traffic showing an significant internal or external are presently located in the south increase by 38.5% in 2006/07 as developments. followed by west, north, east and compared to 2005/06. central India. International passenger traffic The Congress-led United registered an increase of 15.1% in Progressive Alliance (UPA) has Airport Infrastructure the same period. Private airlines completed three years in office as Overview accounted for 80.7% of the total of May 2007. The coalition The total air passenger traffic in domestic traffic with low fare introduced the Common India has shown an increase of airlines accounting for 29.7%. Minimum Programme that 31.4% in 2006/07 as compared to focused on the economic growth that handled in 2005/06. The To substantiate the emphasis on and development of the masses main reason for higher growth in the development of airports in and provision of basic necessities traffic is due to the contribution secondary cities and expansion of to all. However, differences in of low-cost airlines. With more existing airports across the perspective during the tenure of players entering this segment and country, an estimated investment the government, with regard to the ongoing consolidation, the of Rs47,000 crore for economic, social, and foreign outlook for the Aviation sector is modernisation is expected over policy issues among the parties of positive. , after the next five years. The increase the alliance have been hindrances. acquiring Air Sahara in April in the levels of passenger and Frequent disrupting of functioning 2007, has repositioned the latter cargo traffic has placed a heavy of parliament has also been a as a niche player between low- strain on the airports especially in problem. Nevertheless, India has cost and full-service airlines, New Delhi, , Kolkata, seen a continuity of reforms over under the new brand name Chennai and Bangalore. It has a decade and irrespective of varied JetLite. Furthermore, Kingfisher highlighted the need for ideological dispositions, this Airlines has taken up a stake in substantial investment to develop trend is expected to continue and the alliance and expand the existing facilities. unimpeded. intends to create an independent In order to meet the increased company where charter demand, the current government According to a report by the operations - a fast-emerging has brought in private sector Confederation of Indian Industries segment with high potential - of assistance to invest in, and (CII) 2006/07, though India has both the companies will be develop airports. The GVK led

HVS Hospitality Services Hotels in India - Trends & Opportunities 2001 3 Table 2: Key Tourism Statistics

2001 2002 2003 2004 2005 2006 2007*

Number of Arrivals 2,537,000 2,360,000 2,726,000 3,406,623 3,918,610 4,429,915 4,917,206 Foreign Exchange Earnings (US$ billion) $3.04 $2.96 $3.60 $4.81 $5.73 $6.60 $7.70 Foreign Exchange Earnings Per Visitor $1,198 $1,254 $1,321 $1,412 $1,462 $1,490 $1,566 Total Arrivals to New Delhi 33.7% 28.6% 30.8% 32.2% 31.9% 31.0% 30.1% Total Arrivals to Mumbai 26.7% 25.4% 24.1% 25.1% 24.4% 23.5% 22.9% Total Arrivals to Chennai 12.0% 11.5% 10.5% 10.3% 9.9% 9.3% 8.9% Total Arrivals to Kolkata 4.3% 3.8% 3.7% 3.3% 3.0% 2.8% 2.7% Total Arrivals to Bangalore 4.1% 4.2% 4.2% 3.9% Total Arrivals to Goa 4.1% 4.3% 4.4% 4.3% Total Arrivals to Hyderabad - 1.3% 1.4% 1.4% Exchange Rate US$1.00:Rs 47.20 48.20 46.00 44.90 44.50 43.60 40.50

* Note: All figures for 2007 and all exchange rates (weighted for the year) are HVS Estimates Source: Ministry of Tourism and HVS Estimates consortium for Mumbai airport 8.8% from 2004-13, which would consumer through electronic, print plans to include a second runway, place India as the third-most and internet media. a new cargo facility and a new rapidly growing tourism market terminal for both international in the world after Montenegro Highlighting the progress in this and domestic flights by 2010. The and China. It would further result regard, India has been ranked New Delhi airport is expected to in a growth of 7.1% in total travel number one in top travel have an interim terminal that will and tourism GDP. A longer term, destinations of the world be ready by 2008 to ease out sustained growth of the industry according to this year’s Readers traffic until the third terminal depends on how successfully Travel Awards announced by comes up by 2010. several issues are addressed – Condé Nast Traveler, UK. relating to old and poorly Moreover, the Incredible India Greenfield airports are being facilitated airports, inadequate campaign has been ranked as the constructed in Devanahalli near hotels, poor road and transport ‘Highest Recall Advertisement’ Bangalore and Shamshabad near infrastructure, high levels of worldwide by Travel and Leisure. Hyderabad, which are expected taxation and a bureaucratic visa to be operational by April 2008 processing system. The budget While a lot of attention is given to and March 2008 respectively. The has proposed an outlay of international tourist trends, the modernisation process at Kolkata approximately Rs570 crore for true potential of tourism within is already in progress while the development of tourism India can be leveraged by tapping Chennai airport has recently been infrastructure in 2007/08, up the domestic leisure segment, sanctioned, along with plans for from Rs423 crore proposed in the which is currently estimated at 250 the announcement of a Greenfield corresponding period of 2006/07. million travelers. According to our airport. estimates, as India gets younger Foreign Tourist arrivals in India and richer, there will be sustained Table 2 reflects key statistics for have been showing an increasing demand for short duration travel the Indian tourism industry. trend, estimated at 4.43 million in at major gateway destinations and 2006, up 13.0% from 2005 (3.94 these markets will grow Trends & Developments in million). The current government, exponentially in the next three to Tourism it appears, is taking active interest five years. With sustained The tourism industry in India, in developing tourism in India. economic performance, India’s Per despite being an important The continued ‘Incredible India’ Capita Income will also continue component of the economy, campaign has had a strongly to witness growth. Moreover, contributed only 5.9% of the GDP positive impact on tourist arrivals. higher disposable income rather in 2006/07. According to Definite efforts are being made to than lower savings has influenced estimates of the World Travel & communicate the ‘Brand India’ the present-day consumption Trade Council (WTTC), Indian message by penetrating the global boom in India. This is good news, tourism demand will grow at market and reaching the ultimate as income induced spending is

4 Hotels in India - Trends & Opportunities 2001 HVS Hospitality Services likely to sustain itself for a longer Survey Results growth than in previous years period and higher disposable The HVS survey has been across these very cities. incomes are also expected to computed by dividing the enhance the concept of traveling respondent hotels into their This trend resembles the period for leisure thus providing the respective classifications according starting 1996-97 where necessary impetus to destination to star category. As before, we have occupancies had started to decline travel within integrated travel examined the performance of ten but average rates continued to rise circuits. major cities across India, wherever for a few years thereafter. a reasonable sample allowed. However, much has changed In most markets, insufficient room While most of the data provided to during the past decade. Today availability and high rates create us is in Indian rupees, we have India is in the ’must have’ list of the conditions that are not conducive presented survey results in US international investment for large incentive based group dollars as well. community and there appears to travel. Logistical bottlenecks and be genuine interest in the country lack of appropriate infrastructure Ten years ago, the four metro from foreign investors. Mainly in these markets also pose a cities of Mumbai, Delhi, Chennai Indian companies and problem. Various state governments in India have and Kolkata were the top four businessmen lead the demand expressed keen interest in tourism market performers, respectively, boom. The economy is witnessing infrastructure developments. in terms of Revenue Per Available exciting growth across most sectors Room (RevPAR). In 2007, and there is a huge demand-supply The economy’s buoyancy, Mumbai has fallen to 3rd spot, gap that has formed. initiatives to improve infra- Delhi retains its 2nd spot, while structure, the boom in aviation Chennai and Kolkata are 6th and The demand supply gap has and real estate, easing of 7th respectively. clearly benefited the existing restrictions on foreign investment hoteliers who have hiked their and, perhaps, most importantly, Recent developments within the rates across market segments. efforts to communicate the Brand industry, backed with a positive However, we now notice that it’s India message – will continue to outlook for the economy, have beginning to take its toll on the fuel demand for hotels across star resulted in accelerated growth in potential demand growth in some categories in the majority of leisure demand for hotel accommodation of the cities. The high rates have markets. India’s hotel industry is over the last two years. The also resulted in the emergence of increasingly being viewed as continued demand-supply an unregulated and unorganised investment-worthy, both within imbalance has led to exponential hotel / guesthouse sector that is the country and outside. Niche rate increases resulting in inflated witnessing a boom in cities like markets such as medical tourism, room rates across key markets in Bangalore, Delhi and Pune. The culture tourism, the Great Indian the country, some of which rapid development of standalone Temple circuit, ayurveda and currently rank among the most hotels is resulting in a parallel yoga, and adventure tourism, will expensive hotel markets in the supply of rooms in each of these grow rapidly. world. Over the long term, inflated markets, resulting in softening of Tourism has rapidly emerged as a room rates are expected to have a occupancy performance. For the significant segment of the Indian severe negative effect on the 2007/08 period, key markets such economy. With active government potential demand, especially for as Bangalore, Chennai, Delhi and participation, higher disposable Leisure destinations. Our research Hyderabad have all seen a decline incomes of the population, better indicates that the effects of in absolute occupancy despite positioning of India as an spiraling rates have already been year-on-year growth in annual international tourist destination noticed in most markets. For the Rooms Per Day (RPDs). For and synergized efforts of all first time in four years markets Bangalore, in fact, it’s a second industries towards it, the outlook have started showing a decline in consecutive year of decline in for tourism in India continues to occupancy. Average rates, on the occupancy and increase in remain buoyant in the long term. other hand, showed even a higher average rates. Despite the drop

HVS Hospitality Services Hotels in India - Trends & Opportunities 2001 5 witnessed in the four major year, showed a marginal growth touched a record 72.0% mark for markets, overall occupancies of 0.7% (in 2006/07). Table 3 the first time. While the year-on- across various star categories rose reflects room occupancy by hotel year demand growth from certain across India indicating a very classification for the period 1997/ segments continued, the overall healthy hotel market and a 98 to 2006/07. Table 4 presents supply addition has been confirmation to all of us that the average rate performance in marginal. Due to the widening secondary and tertiary markets Indian rupees for the same period gap, hotels over the last 3-4 years are indeed doing rather well. while Table 5 reflects average rate have re-aligned their yield results in US dollars. management and pricing to Overall, the industry saw a 12- increase penetration from high month growth of 30.0% in Average rates in 2006/07 paying customers. Our research average rate (in 2006/07), as witnessed another increase across indicates that when year round opposed to a growth of 23.7% the all market segments. This is occupancies start touching the 70- previous year. Occupancy growth, partially attributable to the strong 75% mark, there is substantial which had been 2.6% the previous demand: All-India occupancy unaccommodated demand in the

Table 3: Key Operating Characteristics by Hotel Classification – Occupancy

12-Month Compounded 1997/98 1998/99 1999/00 2000/01 2001/02 2002/03 2003/04 2004/05 2005/06 2006/07 Growth* Growth

Overall Average 57.1% 55.4% 53.9% 57.2% 51.6% 57.2% 64.8% 69.0% 71.5% 72.0% 0.7% 2.6% Five-star Deluxe 62.0% 60.2% 58.3% 60.9% 52.2% 59.3% 65.0% 71.4% 73.8% 74.0% 0.3% 2.0% Five-star 58.5% 56.4% 55.7% 56.1% 51.4% 57.0% 66.8% 71.1% 70.4% 71.0% 0.9% 2.2% Four-star 58.2% 55.9% 53.2% 58.7% 52.7% 56.4% 68.7% 71.8% 72.7% 72.9% 0.3% 2.5% Three-star 47.0% 48.2% 47.7% 48.8% 49.7% 53.6% 59.6% 56.7% 65.9% 68.1% 3.3% 4.2%

* Growth in 2006/07 (in absolute terms) expressed as percentage of the figure for 2005/06

Table 4: Key Operating Characteristics by Hotel Classification – Average Rate (Indian Rupees)

1997/98 1998/99 1999/00 2000/01 2001/02 2002/03 2003/04 2004/05 2005/06 2006/07 12-Month Compounded Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs. Growth* Growth

Overall Average 3,986 3,903 3,505 3,731 3,467 3,269 3,569 4,299 5,444 7,075 30.0% 6.6% Five-star Deluxe 5,613 5,572 4,910 5,102 4,668 4,335 4,686 5,606 7,168 9,735 35.8% 6.3% Five-star 3,315 3,516 3,368 3,447 3,277 3,114 3,372 3,897 4,985 6,536 31.1% 7.8% Four-star 2,538 2,296 2,168 2,392 2,368 2,246 2,580 3,088 3,847 4,995 29.8% 7.8% Three-star 1,543 1,457 1,505 1,673 1,696 1,669 1,670 1,830 2,212 2,786 25.9% 6.8%

* Growth in 2006/07 (in absolute terms) expressed as percentage of the figure for 2005/06

Table 5: Key Operating Characteristics by Hotel Classification – Average Rate (US Dollars)

1997/98 1998/99 1999/00 2000/01 2001/02 2002/03 2003/04 2004/05 2005/06 2006/07 12-Month Compounded US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ Growth* Growth

Overall Average 109.80 90.24 80.58 83.10 73.45 67.83 77.59 95.73 122.34 162.27 32.6% 4.4% Five-star Deluxe 154.62 128.14 112.88 113.64 98.90 89.94 101.87 124.86 161.08 223.28 38.6% 4.2% Five-star 91.31 78.57 77.42 76.77 69.43 65.23 73.31 86.79 112.03 149.91 33.8% 5.7% Four-star 69.92 61.19 49.97 53.27 50.17 46.59 56.09 68.78 86.45 112.84 30.5% 5.5% Three-star 42.51 37.03 34.59 37.27 35.93 34.63 36.31 40.71 49.71 63.89 28.5% 4.6%

* Growth in 2006/07 (in absolute terms) expressed as percentage of the figure for 2005/06

6 Hotels in India - Trends & Opportunities 2001 HVS Hospitality Services Table 6: Key Operating Characteristics by Hotel Classification – RevPAR (Indian Rupees)

1997/98 1998/99 1999/00 2000/01 2001/02 2002/03 2003/04 2004/05 2005/06 2006/07 12-Month Compounded Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs. Growth* Growth

Overall Average 2,276 2,162 1,889 2,134 1,789 1,870 2,313 2,966 3,892 5,094 30.9% 9.4% Five-star Deluxe 3,480 3,354 2,863 3,107 2,437 2,571 3,046 4,003 5,290 7,204 36.2% 8.4% Five-star 1,939 1,983 1,876 1,934 1,684 1,775 2,252 2,771 3,509 4,641 32.2% 10.2% Four-star 1,477 1,283 1,153 1,404 1,248 1,267 1,772 2,217 2,797 3,641 30.2% 10.5% Three-star 725 702 718 816 843 895 995 1,038 1,458 1,897 30.2% 11.3%

* Growth in 2006/07 (in absolute terms) expressed as percentage of the figure for 2005/06

Table 7: Key Operating Characteristics by Hotel Classification – RevPAR (US Dollars)

1997/98 1998/99 1999/00 2000/01 2001/02 2002/03 2003/04 2004/05 2005/06 2006/07 12-Month Compounded US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ Growth* Growth

Overall Average 62.70 49.99 43.43 47.53 37.90 38.80 50.28 66.05 87.47 116.83 33.6% 7.2% Five-star Deluxe 95.86 77.14 65.81 69.21 51.63 53.33 66.22 89.15 118.88 165.23 39.0% 6.2% Five-star 53.42 44.31 43.12 43.07 35.69 37.18 48.97 61.71 78.87 106.44 35.0% 8.0% Four-star 40.69 34.21 26.58 31.27 26.44 26.28 38.53 49.38 62.85 82.26 30.9% 8.1% Three-star 19.98 17.85 16.50 18.19 17.86 18.56 21.64 23.08 32.76 43.51 32.8% 9.0%

* Growth in 2006/07 (in absolute terms) expressed as percentage of the figure for 2005/06 market. Unaccommodated were much higher than those continued marginal growth over demand is often a form of excess witnessed 12 months earlier. It may a relatively strong base in demand resulting from the cyclical also be noted that over a ten-year previous two years is quite an nature of the hotel business due to period, the compounded average achievement and reflects the presence of weekday and monthly rate growth in rupee terms has strong demand indicators seasonality. been the strongest in the four-star emerging from Tier II markets. and five-star category followed by The three-star (budget) segment During this high demand period, three-star and then five-star deluxe witnessed the highest growth in many cities were completely sold hotels. With the appreciation of the occupancy at 3.3%. This was out on a number of nights, Indian rupee against the US dollar, followed by the five-star category resulting in hotels selling a we see that the growth in dollar at 0.9% and the five star-deluxe significant proportion of its terms is even stronger. and four-star at 0.3% each. Table inventory on rack rates. For 2006/ 6 presents RevPAR performance 07, the largest increase in average As highlighted earlier, despite a in rupees for the period 1997/98 rates was seen in the Luxury drop in occupancy for the four to 2006/07 and Table 7 presents segment followed by the Mid- major cities in India, it is indeed the same in US dollars. market and Budget segments. remarkable to see an across the board growth in terms of The emergence of relatively new The highest annual growth, in occupancy for the various market feeder markets like the growing rupee terms, was witnessed in the segments. This was previously airline industry and consistent five-star deluxe (35.8%) and five- only achieved in 2002/03, post demand from niche segments star (31.1%) categories, followed by the impact of September 11, 2001. such as Extended Stay, have the four-star category (29.8%). The However that was within resulted in a higher level of base average rate for three-star expectations as the base for all demand that ensures a minimum properties also showed a healthy occupancies had been relatively level of occupancy. This demand increase (25.9%). These growths lower. Therefore, last year’s has been extremely advantageous

HVS Hospitality Services Hotels in India - Trends & Opportunities 2001 7 for the hotels as it enabled them to earlier, all major cities like Delhi, in fourth at 28.8%. The IT cities indulge in proactive revenue Bangalore, Hyderabad and of Hyderabad and Bangalore manage-ment, rate contracting Chennai saw declines in witnessed a slower growth at and micro-segment planning. occupancy. However, in the 25.1% and 20.3% respectively. However, HVS also believes that previous year (2005/06), Ahmedabad, Agra, Goa and the demand from Extended Stay Hyderabad and Delhi year logged Jaipur also saw robust growth segment is assisting in the 80% plus occupancies. Hyderabad rates that ranged from 15.4% for mushrooming of the unorganised saw two new hotels commence Ahmedabad to 21.7% for Goa and guesthouse segments. Today, operations during this period; and Jaipur. Bangalore has a base of Delhi, in fact, saw supply being approximately 2,000 rooms in the sucked out of the market due to In our 2005 edition of this report, unbranded segment, which is renovations. HVS had predicted that average higher than branded or quality rates would go up by 20-25% for hotel supply. Each of these HVS believes that the acute the next three years. In 2005/06, establishments are able to charge shortage of rooms is the increase was 23.7% while in Rs3,000 to Rs7,000. increasingly being filled by 2006/07 it was 30.0%. Though standalone hotels and a fast this may have brought short-term In terms of RevPAR, all star growing unorganised serviced gains for the existing players we categories experienced healthy apartments segment in not only believe that in the medium to long growth in 2006/07. For the Delhi and Hyderabad but also term this would remain second consecutive year the five- in Bangalore, Pune and detrimental to the overall growth star deluxe hotels experienced the Chennai. We also believe that of tourism and business in India. maximum growth in rupee terms the aforementioned cities have Also these huge increases in (36.2%) followed by five-star limited scope for further growth average rates mean that the hotels (32.2%). The four-star and in occupancy in the immediate correction, whenever it happens, three-star hotels each saw an future, because of weekend will be sharper. While we expect increase as well at 30.2%. In US seasonality, which remains the demand-supply gap to dollar terms the five-star deluxe relatively weak. The high continue for many more years, segment showed the highest average rates have started to we still run the risk of chasing increase (39.0%), followed by the play a serious deterrent to business away to the guesthouses five-star (35.0%) and three-star travelers and the rates often do and the unorganised sector. We (32.9%) segments. not match up to service quality expect certain markets to start levels. The desire to increase seeing earlier than expected Table 8 illustrates hotel occupancy bottom lines has also resulted in corrections on the rate front. for ten key cities in India, between hotels withdrawing many of the These include Bangalore and 1997/98 and 2006/07. Tables 9 freebies that were being offered potentially Pune and Hyderabad and 10 show average rates for each until recently. in the short term. However most of these hotel markets, expressed other cities will continue to enjoy in Indian rupees and US dollars, In terms of average rate (rupee another 3-4 years of rate respectively. Tables 11 and 12 terms), the four major metros - improvement. present the corresponding Mumbai, Delhi, Kolkata and RevPAR data for each city. In Chennai - all overtook the Hyderabad, Bangalore and now 2006/07, the two Leisure markets previous years’ two growth Goa too, are the three cities that of Goa and Agra saw the highest leaders, Bangalore and have witnessed the highest occupancy growth at 8.4% and Hyderabad. Mumbai topped the growths over a 10-year period 4.5% respectively, followed by charts with a staggering growth (compounded growth) at 15.6%, marginal increases in Mumbai rate of 42.6%. This was followed 13.2% and 10.9%, respectively. In (3.3%), Jaipur and Kolkata (0.9%) by the cities of Kolkata (38.0%) fact a market that has grown and Ahmedabad (0.7%). As stated and Delhi (37.2%). Chennai came remarkably slowly during this

8 Hotels in India - Trends & Opportunities 2001 HVS Hospitality Services Table 8: Key Operating Characteristics by Major City – Occupancy

1997/98 1998/99 1999/00 2000/01 2001/02 2002/03 2003/04 2004/05 2005/06 2006/07 12-Month Compounded Growth* Growth

Agra 46.1% 46.4% 40.1% 42.5% 33.7% 30.7% 50.0% 57.1% 56.0% 58.5% 4.5% 2.7% Ahmedabad 71.8% 58.0% 50.8% 55.8% 53.2% 53.8% 63.2% 68.3% 69.1% 69.6% 0.7% -0.3% Bangalore 61.2% 59.0% 64.4% 69.8% 64.3% 72.0% 78.5% 81.4% 76.7% 75.5% -1.6% 2.4% Chennai 68.4% 64.7% 65.3% 64.6% 56.5% 58.3% 66.6% 72.9% 78.2% 74.7% -4.5% 1.0% Delhi 60.2% 54.1% 52.9% 58.9% 53.3% 60.4% 73.1% 79.1% 80.8% 78.1% -3.3% 2.9% Goa 59.2% 58.6% 53.3% 60.6% 53.6% 60.5% 59.3% 62.5% 67.8% 73.5% 8.4% 2.4% Hyderabad 53.4% 66.0% 61.3% 69.1% 68.0% 68.9% 75.9% 78.7% 82.0% 73.3% -10.6% 3.6% Jaipur 51.7% 45.6% 47.0% 55.0% 48.3% 44.9% 58.8% 67.2% 65.7% 66.3% 0.9% 2.8% Kolkata 61.8% 57.8% 54.8% 62.9% 66.4% 65.4% 62.8% 69.0% 76.4% 77.1% 0.9% 2.5% Mumbai 65.3% 67.6% 64.5% 64.6% 52.0% 63.4% 69.7% 72.0% 76.2% 78.7% 3.3% 2.1%

* Growth in 2006/07 (in absolute terms) expressed as percentage of the figure for 2005/06

Table 9: Key Operating Characteristics by Major City – Average Rate (Indian Rupees)

1997/98 1998/99 1999/00 2000/01 2001/02 2002/03 2003/04 2004/05 2005/06 2006/07 12-Month Compounded Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs. Growth* Growth

Agra 2,027 1,906 1,638 1,586 1,840 1,954 2,431 3,012 3,622 4,310 19.0% 8.7% Ahmedabad 1,833 2,220 2,705 2,736 2,354 2,164 2,410 2,787 3,111 3,589 15.4% 7.8% Bangalore 3,451 3,254 3,025 3,602 3,735 3,752 4,832 7,470 8,762 10,545 20.3% 13.2% Chennai 3,977 3,600 3,424 3,796 3,535 3,224 3,323 3,714 4,357 5,610 28.8% 3.9% Delhi 4,913 4,626 4,115 4,526 4,338 4,089 4,269 5,103 6,909 9,482 37.2% 7.6% Goa 2,303 2,863 2,727 2,914 2,676 2,754 3,086 3,985 4,804 5,846 21.7% 10.9% Hyderabad 1,646 1,579 1,867 2,316 2,414 2,541 2,774 3,772 4,870 6,091 25.1% 15.6% Jaipur 2,473 2,533 2,514 2,902 2,949 2,728 2,980 3,461 4,407 5,364 21.7% 9.0% Kolkata 3,951 3,888 3,557 3,698 3,409 2,917 3,021 3,240 3,887 5,366 38.0% 3.5% Mumbai 6,169 6,297 5,661 5,555 4,932 4,184 4,356 4,822 6,041 8,614 42.6% 3.8%

* Growth in 2006/07 (in absolute terms) expressed as percentage of the figure for 2005/06

Table 10: Key Operating Characteristics by Major City – Average Rate (US Dollars)

1997/98 1998/99 1999/00 2000/01 2001/02 2002/03 2003/04 2004/05 2005/06 2006/07 12-Month Compounded US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ Growth* Growth

Agra 56 50 38 35 39 41 53 67 81 99 22.2% 6.5% Ahmedabad 50 53 62 61 50 45 52 62 70 82 17.1% 5.7% Bangalore 95 81 70 80 79 78 105 166 197 242 22.8% 10.9% Chennai 110 89 79 85 75 67 72 83 98 129 31.6% 1.8% Delhi 135 111 95 101 92 85 93 114 155 216 39.4% 5.4% Goa 63 73 63 65 57 57 67 89 108 134 24.1% 8.7% Hyderabad 45 39 43 52 51 53 60 84 109 140 28.4% 13.4% Jaipur 68 62 45 65 62 57 65 77 99 123 24.2% 6.8% Kolkata 109 88 82 82 72 61 66 72 87 123 41.4% 1.4% Mumbai 170 138 130 124 104 87 95 107 136 198 45.6% 1.7%

* Growth in 2006/07 (in absolute terms) expressed as percentage of the figure for 2005/06

HVS Hospitality Services Hotels in India - Trends & Opportunities 2001 9 Table 11: Key Operating Characteristics by Major City – RevPAR (Indian Rupees)

1997/98 1998/99 1999/00 2000/01 2001/02 2002/03 2003/04 2004/05 2005/06 2006/07 12-Month Compounded Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs. Growth* Growth

Agra 934 884 657 674 620 600 1,216 1,720 2,028 2,521 24.3% 11.7% Ahmedabad 1,316 1,288 1,374 1,527 1,252 1,164 1,523 1,904 2,150 2,498 16.2% 7.4% Bangalore 2,112 1,920 1,948 2,514 2,402 2,701 3,793 6,081 6,720 7,961 18.5% 15.9% Chennai 2,720 2,329 2,236 2,452 1,997 1,880 2,213 2,708 3,407 4,191 23.0% 4.9% Delhi 2,958 2,503 2,177 2,666 2,312 2,470 3,121 4,036 5,582 7,405 32.7% 10.7% Goa 1,363 1,678 1,453 1,766 1,434 1,666 1,830 2,491 3,257 4,297 31.9% 13.6% Hyderabad 879 1,042 1,144 1,600 1,642 1,751 2,105 2,969 3,993 4,465 11.8% 19.8% Jaipur 1,279 1,155 1,182 1,596 1,424 1,225 1,752 2,326 2,895 3,556 22.8% 12.0% Kolkata 2,442 2,247 1,949 2,326 2,264 1,908 1,897 2,236 2,970 4,137 39.3% 6.0% Mumbai 4,028 4,257 3,651 3,589 2,565 2,653 3,036 3,472 4,603 6,779 47.3% 6.0%

* Growth in 2006/07 (in absolute terms) expressed as percentage of the figure for 2005/06

Table 12: Key Operating Characteristics by Major City – RevPAR (US Dollars)

1997/98 1998/99 1999/00 2000/01 2001/02 2002/03 2004/04 2004/05 2005/06 2006/07 12-Month Compounded US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ Growth* Growth

Agra 26 23 15 15 13 13 27 38 45 58 27.7% 9.4% Ahmedabad 36 31 31 34 27 24 33 42 48 57 18.0% 5.3% Bangalore 58 48 45 56 51 56 82 135 151 183 20.9% 13.6% Chennai 75 58 52 55 42 39 48 61 77 96 25.7% 2.8% Delhi 81 60 50 59 49 51 68 90 125 169 34.7% 8.5% Goa 37 43 34 39 31 34 40 56 73 98 34.5% 11.4% Hyderabad 24 26 26 36 35 37 46 66 89 103 14.8% 17.5% Jaipur 35 28 21 36 30 26 38 52 65 82 25.4% 9.8% Kolkata 67 51 45 52 48 40 41 50 66 95 42.7% 3.9% Mumbai 111 93 84 80 54 55 66 77 104 156 50.4% 3.8%

* Growth in 2006/07 (in absolute terms) expressed as percentage of the figure for 2005/06 period is Mumbai (3.8%). highest increase. Last year show improvements until new However, with the impending Hyderabad became the RevPAR supply hits this market. Another shortage of rooms in Mumbai growth leader and achieved a market that continues to do well over the next few years we can growth of 44.3%. This year it is Goa with a RevPAR growth expect this to correct itself and was relegated to last place in of 31.9%. Future RevPAR performance in secondary HVS strongly believes that terms of RevPAR growth, an destinations, both Commercial Mumbai will remain the most indication of what happens and Leisure, will depend upon attractive hotel investment when hotel rates reach demand growth from key market over the next four to five abnormally high levels. Mumbai markets and occupancy (47.3%), followed by Kolkata years or even longer. improvement is likely to be the (39.3%) and Delhi (32.7%) were most important driver. In terms of RevPAR the trends the RevPAR leaders in 2006-07. Secondary markets, typically, have been interesting. Two Kolkata actually has done have substantially higher rate years ago Bangalore led the remarkably well over the past sensitivity, resulting in longer growth story by registering the 2-3 years and should continue to rate maturity periods.

10 Hotels in India - Trends & Opportunities 2001 HVS Hospitality Services Hotel Supply fashionable to make announce- shares a probability factor (active Over the past two years, we at ments particularly by real estate supply) to reflect those hotels, HVS have been tracking the developers to the media that they which are either under development of new supply very are developing 20 or more hotels. construction or hotels that HVS is closely. In 2005, the proposed With the exception of a few large confident will open before new supply of branded and real estate developers, no one December 2010. Moreover, we quality hotels for the ten markets wants to state that they are doing have provided in this table the covered by us was 22,400. This one or two or even three hotels as potential positioning for this new rose to 48,500 in 2006 and today they might be seen as being small. supply and allocated it among has further grown to 77,500. In If they intend an IPO, then there Luxury, First class, Mid-market fact if we were to take all new is concern that such a perception and Budget hotels. Following this supply there would be a total of could affect their listing. table we have presented our views 1,02,000 rooms entering the Therefore, we at HVS have put on the supply outlook of all the Indian hotel industry within the together a list of developments cities. next five years. This year’s report under construction or those also shows the new expected announced in each market that Last year, when we undertook the supply for Pune and Chandigarh, have a confirmed tie-up with an exercise of determining new hotel in addition to the other markets. operator and have given an supply, clearly Hyderabad and unbiased third party probability Bangalore were expected to see the We would like to categorically factor of their prospects within maximum development at 513.7% state that this does not include all the next five years. and 408.9% respectively. These two hotels announced in the media IT cities are still very much near the from various sources. HVS has In Table 13, we present the top with expected increases in been tracking new supply very existing and proposed supply room supply of 568% for closely each year, and we have entering each of the ten markets Hyderabad and 534% for come to the conclusion that there covered in this report. The table Bangalore. They have, however, is a good deal of misinformation reflects the proposed supply’s been overtaken by Pune, which has and speculation, where new anticipated growth over the next 1,039% increase anticipated in its supply is concerned. Today it is five years (2007-2012) and also potential supply. While the above

Table 13: Distribution of Existing and Proposed Branded Hotels by Major City Active Proposed Increase over Development of Existing Supply Supply Five Years Supply Luxury First Class Mid-market Budget

Agra 1,336 764 57% 32% - 10.5% 73.8% 15.7% Ahmedabad 519 2,230 430% 60% - 30.3% 40.9% 28.9% Bangalore 2,414 12,882 534% 61% 22.8% 35.7% 34.7% 6.8% Chandigarh 340 1,567 461% 45% 9.6% 22.3% 45.3% 22.8% Chennai 2,442 6,213 254% 68% 23.8% 20.5% 40.9% 14.7% Delhi (NCR) 7,990 19,423 243% 56% 23.3% 25.9% 32.5% 18.3% Goa 2,450 3,058 125% 58% 37.5% 22.4% 28.1% 12.0% Hyderabad 1,868 10,619 568% 47% 18.3% 34.1% 34.2% 13.5% Jaipur 1,388 4,012 289% 56% 12.2% 36.5% 35.3% 16.0% Kolkata 1,354 3,644 269% 67% 16.9% 30.6% 47.7% 4.8% Mumbai 7,402 11,578 156% 49% 31.8% 31.8% 24.8% 11.6% Pune 777 8,072 1039% 77% 14.1% 24.4% 51.8% 9.6% Other Cities 9,005 17,909 199% 58% 4.2% 23.6% 21.5% 50.7%

Total 39,285 101,971 260% 58%

HVS Hospitality Services Hotels in India - Trends & Opportunities 2001 11 table needs to be read carefully and the Pune market tops our list space, providing necessary may even come as a shock to many with close to 8,000 rooms impetus for growth and potential investors, we should give planned. Unlike other cities, expansion of demand base. careful consideration, if not more considerable construction activity Despite the potential 568% weight, to the actual active is taking place here in the hotel growth in new supply, we believe development of the proposed space and we anticipate that that only 47% of this will actually supply in column four. So while within the next 18 months alone convert itself into new rooms. Pune may reflect that 8,072 rooms 2,000 rooms will be added to the There appears to be a lot of are under development, we at HVS city supply. This is expected to hesitation and delays for the believe that 77% of this proposed not only bring down occupancy various projects. Also it would be supply will actually get developed levels but we anticipate that there recommended that the focus by 2010. will be a short-term oversupply move towards budget hotels as in certain areas within Pune they are expected to outperform There has also always been resulting in sharp rate correction the market and give better returns considerable debate about the in the market. While most of the on investment to developers. number of rooms India actually planned supply in the market is Hyderabad too runs the risk of has. Our estimate is that there are concreted around existing going the way that Bangalore and possibly 1,10,000 rooms currently demand areas, the potential for a few other cities did, with operating in India. This number further demand in these areas corporates beginning to shy away is based on the number of rooms has saturated, resulting in supply from hotels as they have which are officially approved by bubbles. We are of the opinion completely outpriced themselves the Government of India as well that development of hotels with in the market. Instead corporates as the number of FHRAI boutique orientation, positioned set up guesthouses or members. We also estimate that between mid-market and first- accommodation rooms for there would probably be another class, within integrated mixed- employees are now more the 25,000 to 30,000 guesthouses or use developments, will continue norm. corporate guesthouses taking the to do well in the medium to long total supply of transient guest term. Bangalore has been on the radar rooms to approximately 2,00,000 of quite a few developers mainly units/rooms. What however is When HVS started the survey 11 due to the spectacular shocking and a number that we years ago, the Hyderabad market performance of the city over the th are absolutely confident about is was ranked 10 and last in terms past four years. While new supply the low number of branded or of RevPAR. Today it has risen to has been relatively slow in quality room supply in the 4th place and enjoys the highest coming, a fair bit of development country; it stands at below 40,000. compounded growth rate at is taking place. The city has also This overall number for India is 17.5% in terms of RevPAR witnessed a mushrooming of actually lower than that for many growth. More Meeting, guesthouses that have eaten into international cities around the Incentive, Convention, Exhibition the hotel market, which is globe. Therefore when we look at (MICE) business is likely to be resulting in the weakening of the approximate 1,02,000 rooms induced in Hyderabad with the occupancy. Once supply– being developed or say we use a development of a new airport demand equilibrium is reached probability factor of 58% across and the Hyderabad International (around 2009/10), HVS predicts the country, the numbers of Convention Centre. Thus, we that there will be a sharp rate rooms being developed in India expect the Hyderabad market to correction in the Bangalore still remain extremely low and be on an upward trajectory. market. This will actually help offer huge potential to investors There is a strong positive bring back some of the and operators across all segments. correlation between absorption unaccommodated demand being trends of commercial space and utilized by the unorganised In most cities this high growth demand growth in room nights. sector. We maintain that there can easily be attributed to the Over the long term, the remain pockets in Bangalore that existing low base of quality hotel Hyderabad market is expected to are still viable for the development supply. As previously suggested add substantial commercial of hotels provided the positioning

12 Hotels in India - Trends & Opportunities 2001 HVS Hospitality Services is correct. Clearly there is a good positioning in the Golden Triangle the advantage of strong growth opportunity for development of (Delhi-Jaipur-Agra) and also in the IT/ITeS sector coupled multiple hotels catering to specific because the city is the entry point with good demand from banking demand areas in the budget and to many other places of interest and automobile, which has a mid-market space. in Rajasthan. Jaipur has recently strong manufacturing base in the started seeing IT/ITeS coming in city. Unlike other locations the Chandigarh (including Mohali) and this is giving the Commercial city’s hoteliers have not pushed has only one recognized brand segment additional room nights. up rates unreasonably and and therefore has an extremely With an extremely proactive therefore we believe in the long low base of room supply. The city government in the tourism space, run this will actually help the city offers excellent opportunities for the state and city have clearly to grow more uniformly. Food & Beverage, Banquets and benefited. The city has a good mix so forth. Therefore we believe of branded and unbranded The Delhi National Capital that First class, Mid-market and supply, owing to its popularity as Region (NCR) has the largest Budget hotels will particularly do a tourism destination. We believe existing base of supply. While the well. As most real estate that new supply will get number of branded / quality companies have land banked in successfully absorbed provided hotels is just short of 8,000 rooms, this city there has been no the projects are built to quality, we believe if one were to add the shortage of announcements. We to match the segments they want unbranded segment and the however estimate at this stage less to compete for, and have their unorganised guesthouses, the than half (45%) of these projects own USP. At present 289% NCR will have at least four to five will actually get developed in the of new supply is expected, times this number of rooms. Last next three years and many of however only 56% of this can be year we suggested that 47 new them on futuristic locations. confirmed. hotels with approximately 10,800 Further, for these new hotels to rooms are coming up. This year perform well there will have to be Kolkata has done relatively well this number has increased to 80 significant development on the in the past three to four years. new hotels with 19,400 rooms. IT/ITeS front as well. However, with 269% potential While this may be music to the supply and 67% probability of this Delhi government’s ears, they Gujurat, as a state, is typically supply entering the market in the should seriously be worried. Last considered a good investment next three years, we are slightly year we had indicated that 74% destination; and Ahmedabad, as worried, as we do not believe that of these projects would be its capital, is certainly gaining commercial development will be developed in time for the from all the interest around hotel able to take place at the same pace. Commonwealth Games. This development. While there is However what worries us further year our research indicates at best active development taking place is that a large part of this only 56% of these projects will be for many projects we believe it is development is happening at the ready. The above takes into well balanced between good upper end of the market. account the delay or complete locations and a good mix of International brands of repute are withdrawal of plots in the products. We do not anticipate signing up in locations not NOIDA corridor that would have development of a luxury hotel of conducive to them and are more allowed for 3,500–4,000 international standards anytime than likely not to achieve the additional rooms supply to enter soon. At present 430% increase in average rates they typically the market. The government supply is expected, however only associate with elsewhere. would be well advised to perhaps 60% of this can be confirmed. put less emphasis in auctioning We remain extremely bullish on sites and generating revenue for HVS believes that Jaipur Chennai, which historically has their respective departments; and continues to have the potential of performed very steadily. Chennai more emphasis on granting converting itself into a more all- can expect a 254% increase in its licenses and other permissions to round destination, owing to its room supply with a high 68% of fast track the developments proximity to the Delhi National availability by 2010. Chennai, planned. If spaces are being Capital Region (NCR), its unlike many other cities, enjoys auctioned off as hotel sites, why

HVS Hospitality Services Hotels in India - Trends & Opportunities 2001 13 do we still need to seek clearances complete the Golden Triangle) is already showing signs of and licences from 40 plus likely to see some additional weakening. agencies to build and open these developments taking place. We hotels ? Another option that could believe the market will perhaps Typically, the average rate certainly alleviate the problem of grow by 57% and approximately movement follows the occupancy room shortage in the NCR is the 32% of this might actually get movement. This has been the case relaxation of FSI restriction for developed. historically, and is a global trend hotels. The FSI is abysmally low as well. So if occupancy goes up (average 2.0) as compared to other Going forward, the biggest the rates follow. Conversely, if international destinations or even challenge, given the present occupancies decline the operators other cities in India. supply scenario, will be the will be hard pressed to reduce availability of quality sites for tariffs. We believe that in addition Mumbai has traditionally been a hotel projects. Site location, Bangalore, Pune and Hyderabad very good market for hotels and accessibility, visibility and also run the risk of lower we expect this to remain a star proximity to key demand areas occupancies in the near future. performer in the next five to six are critical factors for long term Therefore a prudent investor years. There is a huge supply- feasibility of hotels and lack of would base his investments on demand gap, which is currently good sites would have a negative realistic pricing and not on not being met and is not likely to impact on the supply front. The today’s inflated rates. This is correct itself over the next five real estate market too, has seen particularly true for the operators years. The city has a new supply its best times in the last three pipeline of 156%, however less years, and existing land prices who want to function in the than half (49%) of this is expected across most cities are somewhat budget and mid-market space. to be realised. We believe the new prohibitive, especially for international convention centre at standalone property developers. HVS believes that due to the Bandra Kurla complex and the In the past two to three months hardening of debt financing and re-development of the airport will there appears to be a slight a credit crunch across the globe – also certainly induce additional slowdown on the land valuation various projects may run into cost demand for the city hotels. For front. Prices have stagnated if not overruns and delays in the sub- all the new supply entering this slightly corrected themselves. This continent. A lot of the hotel market, we believe it still enjoys a itself offers a great opportunity to projects currently coming up are good mix of different hotel investors who are likely to start being developed without any due segments. looking for bargains. diligence to the process in terms of appropriate positioning, Our favorite Leisure destination Future Trends creating a unique USP, finding the remains Goa. While we have Clearly operators have focused right operator, etc. We have been talking about Goa positively intensely on increasing rates, even noticed hotels being constructed for the past few years, we find if it has been at the cost of lower without proper plans for interior that development activity in this occupancies. While this has been design, fit outs etc. This leads to small state is quite a challenge a good strategy in the short term, unnecessary delays, inferior and hotels take unusually long to in the near future the operators product development and get developed here. The state is need to find the right balance consequently to poor performance likely to see a 125% increase in between trying to push rates vis- in terms of operations. supply with a probability of 58% à-vis losing room nights. Rates completion in the next three last year went up by 30% across F&B space and meeting space is years. The addition of a segments, mainly pushed by very expected to become even more convention centre is also likely to strong performances in Mumbai, important as we move ahead, help in the MICE segment, which Delhi, Kolkata and Delhi (NCR). particularly for full service hotels. offers huge potential. We expect that rates in these cities New restaurant concepts are will further go up in the short to being created and getting a Agra remains a seasonal market, medium term. However, rates in specialist restaurant designer to but due to its importance (to Bangalore and Hyderabad are do one or two restaurants is no

14 Hotels in India - Trends & Opportunities 2001 HVS Hospitality Services longer considered outlandish. already in India and of course, also unrealistically Traditionally the pre-function internationally. We foresee some assumes that there will be no spaces were very small and were of this shortage being met by the attrition of employees to other made available as an add-on. process of hiring more growing sectors such as airlines, Today, modern hotels have been expatriates in India. Also with retail and BPOs which able to convert these areas into rising local payroll costs we can traditionally also eye this pool of revenue generating areas. Most hopefully also witness a reversal talent for their growing needs. conferences need these areas to of man-power movement from The biggest challenges in the near host sponsor booths and/or serve the Middle East back to India. future are also to be faced in food. HVS firmly considers the issue of Pune, Hyderabad and Bangalore man-power shortage within the where unfortunately the talent Technology is also going to hospitality sector to be the most hunt for rivaling sectors also become an important player in serious threat facing the Indian remains high. streamlining operations and hotel industry. In Table 14, we reducing the dependence on have extrapolated the potential man-power. Globally, in-room requirement for man-power Finally, in order to determine the technology is becoming more across the various cities for the immediate short-term trends of sophisticated with interactive next five years. the hotel industry, we have computers, TV and music reviewed key operating statistics stations. This is to the customer’s Using a base of assumptions we for five-star deluxe and five-star benefit as many of these services believe that the country today has hotels in key cities, for the period are being provided free to retain approximately 69,000 people April to September 2007. the guest. working for hotels in the branded Comparisons with the segment. Going forward we need corresponding period last year The problem of inadequate to see this grow by over 213% to have also been presented, to trained man-power persists nearly 147,000 employees. This, illustrate the extent of change.

Table 14: Man-Power Requirements: By 2012-13

Current Man-power1 Proposed Additional Requirement Total Percent Key Cities 2006/07 Luxury2 First class3 Mid-Market4 Budget5 2012/13 Increase

Agra 2,338 - 100 700 100 900 38% Ahmedabad 908 - 1,200 1,100 500 2,800 308% Bangalore 4,225 5,900 8,300 5,400 700 20,300 481% Chandigarh 595 300 600 900 300 2,100 353% Chennai 4,274 3,000 2,300 3,100 700 9,100 213% Delhi (NCR) 13,983 9,100 9,100 7,600 2,800 28,600 205% Goa 4,288 2,300 1,200 1,000 300 4,800 112% Hyderabad 3,269 3,900 6,500 4,400 1,100 15,900 486% Jaipur 2,429 1,000 2,600 1,700 500 5,800 239% Kolkata 2,370 1,200 2,000 2,100 100 5,400 228% Mumbai 12,954 7,400 6,600 3,400 1,100 18,500 143% Pune 1,360 2,300 3,600 5,000 600 11,500 846% Other Cities 15,759 1,500 7,600 4,600 7,300 21,000 133%

Total 68,749 37,900 51,700 41,000 16,100 146,700 213%

1Assuming Employee to Room Ratio of an average 1.75 4Assuming Employee to Room Ratio of 1.2 2Assuming Employee to Room Ratio of 2.0 5Assuming Employee to Room Ratio of 0.8 3Assuming Employee to Room Ratio of 1.8

HVS Hospitality Services Hotels in India - Trends & Opportunities 2001 15 Table 15: Supply and Demand Analysis: April-August 2007 vs. April-August 2006

Room supply per day Rooms occupied per day Occ% Average Daily Rate (ADR) RevPAR Apr-Sept Apr-Sept Apr-Sept Apr-Sept Apr-Sept Apr-Sept Apr-Sept Apr-Sept Apr-Sept Apr-Sept Var Var Var Var Var 2006 2007 2006 2007 2006 2007 2006 2007 2006 2007 Bangalore 1,961 2,170 10.7% 1,424 1,398 -1.8% 73% 64% -11.3% 11,555 11,429 -1.1% 8,391 7,363 -12.2% Chennai 1,729 1,836 6.2% 1236 1270 2.8% 71% 69% -3.2% 5,085 6,374 25.3% 3,635 4,409 21.3% Goa 1,720 1,720 0.0% 1090 1120 2.8% 63% 65% 2.8% 3,585 4,378 22.1% 2,272 2,851 25.5% Hyderabad 1,034 1,448 40.0% 780 922 18.2% 75% 64% -15.6% 7,079 6,609 -6.6% 5,340 4,208 -21.2% Kolkata 1,150 1,150 0.0% 802 847 5.6% 70% 74% 5.6% 4,373 5,869 34.2% 3,050 4,323 41.7% Mumbai 5,626 5,607 -0.3% 3,800 3,922 3.2% 68% 70% 3.6% 7,955 10,265 29.0% 5,373 7,180 33.6% New Delhi 5,422 5,368 -1.0% 3,583 3,660 2.1% 66% 68% 3.2% 8,450 10,402 23.1% 5,584 7,092 27.0%

Source: HVS Research

Table 15 presents our findings for these are the reasons behind the Mumbai, Kolkata, Goa and even the same. sudden drop in performance for Delhi are likely to continue to see these two IT cities. We believe the good growth as there is little Overall performance trends for unorganised sector is becoming immediate supply coming into the first six months of fiscal year exceptionally strong in these these markets. 2007 remains encouraging. With markets and potential customers the exception of Bangalore, which are not finding value for money The Indian economy continues to witnessed a slight decline in propositions for the existing perform strongly, with robust rooms occupied per day (RPD) all hotels. It’s cheaper to stay in the corporate results and a booming other markets have seen a growth guesthouses or avoid staying in stock market the domestic leisure with Hyderabad showing a very these cities all together with demand continues to be good for respectable 18.2% growth in improved air connectivity. Hotel markets like Goa, Jaipur and even terms of RPDs. Notwithstanding owners and operators will be well Kerala. Foreign tourist arrivals advised to put some better yield these figures, due to the increase have grown by approximately in room supply in Bangalore, management activities in place 13.0% in first eight months of Hyderabad and Chennai, they all and ensure that this declining 2007. With the peak travel have seen a decline in overall trend is reversed. Perhaps it may months of October to February occupancy. Kolkata has shown be better to hold on to market coming up we expect the current the most improvement in the share rather than focus on annual year to continue to improve. market with year-to-date rate increases. occupancies going up to 74%. Secondary markets in India will Two years ago at this time the city In terms of RevPAR the market, also continue to see improvements was running at 66% reflecting an in the first six months of 2007, has in performance as more branded improving trend in the market. grown by 41.7% for Kolkata and budget and mid-market hotels Mumbai, Delhi (NCR) and Goa 33.6% for Mumbai. Growth rates open in these cities. are all reflecting positive trends. in terms of RevPAR have either slowed considerably for most Opportunities Average rate performances cities or even declined in some For investment purposes Mumbai remain strong for most markets cases. This is also due to the fact clearly remains our favorite for the third consecutive year with that over the last 2-3 years the destination, as the city continues the exception of Bangalore and base rates have grown and to have a limited supply entering Hyderabad. Kolkata, with an therefore it remains difficult to the market compared to our increase of 34.2%, once again continue to grow at the same fast estimates on the demand side. appears to be the rate leader with pace. HVS predicts that over the The city is the commercial capital Mumbai following at 29.0%. next few years it will become of India and we expect demand While there has been some supply increasingly difficult to push to remain exceptionally strong increase in Bangalore and rates further. There may be a few across all segments in this market. Hyderabad we do not believe exceptions to this and cities like While good locations could afford

16 Hotels in India - Trends & Opportunities 2001 HVS Hospitality Services a luxury or a first class hotel we operators now willing to lend mid-market or budget segments. also see an opportunity to do large their name towards the same. In Obviously there may be some format mid-market or budget fact HVS believes that destination variations to the above. We hotels in this city. resorts and Condo hotels can be foresee many more similar complementary to one another developments taking place due to The NCR, while expecting a lot and therefore may also be the high cost of real estate. of new supply due to the developed side by side. Commonwealth games in 2010, The outlook for the hospitality remains a good choice in many The creation of special economic market in India is optimistic and locations provided you enter the zones across the country is will continue to remain so, in our correct niche segment. expected to provide an impetus opinion. The economy’s Developers, however, need to be to exports from the domestic buoyancy, initiatives to improve careful not to be swayed by the market, especially from the IT and infrastructure, growth in the Games alone but to see the long- ITeS sectors. While there has been aviation and real estate sectors, term viability of hotel projects. a fair amount of political and easing of restrictions on The potential F-1 Race being controversy surrounding these foreign investment, will fuel talked about for 2010 will also SEZs, we believe each of them has demand for hotels across star add to a long list of reasons for immense potential for the categories in the majority of investors to consider this city. The development of hotel projects. markets. However, investment new airport, two potential world- HVS believes there would be good risks will remain. Therefore, a class convention centers are opportunity to invest in hotel wise strategy would be to certainly other sources of induced projects within SEZs. This is carefully observe the progress of demand in this markets. We also particularly true for developers projects under development in continue to consider that the mid- who are developing SEZs but do various cities, see how market and budget hotels have not necessarily want to invest in infrastructure is changing and good potential across most parts hotel assets within them. We at the likely local impact on a project. of the country. HVS are conducting our first Equally important would be the project at a SEZ and believe there segment an investor chooses to Another opportunity is in the is immense potential for mid- enter. Just because a site is Leisure space. India is certainly market, first class and extended available for a first class hotel does ready for family destination stay products in these locations not mean that it would be the best resorts built to international depending upon the SEZs’ investment decision for that standards. These could be done internal product mix. Some hotel particular site. A first class hotel both near eastern and western operators’ initial reactions have on top of a shopping mall with a coastlines or within short been that apart from budget crowded car parking below may distances to major cities. It is hotels, other more upscale hotels not be a best option for a typical important that these destinations may not work in these locations first class guest traveler as s/he be built to international standards and therefore are hesitant to lend could decide to drive a slight and offer value for money to the their better brands. However, we distance and stay further away. families they target. These resorts at HVS believe that these hotels Alternatively a budget hotel may coupled with good MICE will do quite well and present a be a better option as it may be business have the potential to wonderful opportunity for more acceptable, save the create their own niche. A good investors as well. additional FSI for perhaps example of potential increased retail / commercial development could also be to look Mixed use developments space. We anticipate that over at the hills for summer travel and continue to be a good opportunity the next five to six years India will also adventure sports (including for investments as well. However, remain as one of the world’s winter sports). The advent of we understand that if these are fastest growing tourism markets Condo hotels into India is also a to be included with retail format and the economy will also be hard good possibility with several hotel then they are best suited for to ignore.

HVS Hospitality Services Hotels in India - Trends & Opportunities 2001 17 Acknowledgements negotiations; in addition to Generated Media with an aim The Hotels in India - Trends & development strategies for new to create stronger and more Opportunities – 2007 edition brands and investment services. strategic marketing initia- report has been developed for the Our clients in India include Indian tives that address the chang- benefit of employees, developers, Hotels, EIH Ltd, ITC Hotels, Hotel ing market through innovations investors and operators with an Leela Venture Ltd, in product and segmentation, interest in the tourism industry in Intercontinental Hotels & Resorts, supplier/ partner affiliations, India. The study has been made Mandarin Oriental, Carlson CRM and e-CRM activities, possible only with the Hospitality, Global Hyatt, Hilton loyalty programs, advertising contribution and support of all International, Merrill Lynch, and consistent communication. the domestic and international Lehman Bros., Credit Suisse, GIC, hotel chains, to whom HVS AIG, IFC, ICICI Bank, Sun Authors would like to express its gratitude Group, Emaar (Dubai) and This publication has been and appreciation. Kingdom Hotel Investments, authored by Manav Thadani, among others. Managing Director and Partner If you or any of your colleagues with HVS in the New Delhi office. In May 2001, we launched HVS would like to receive Manav has spent over 12 years Executive Search, to cater to the complimentary copies of this with HVS and has worked in the staffing needs of the hospitality publication, or HVS Executive New York, London and Delhi and related services sectors like Search information, kindly send real estate, media, finance and offices of the company. As your e-mail address along with aviation. Apart from being the Managing Director and Partner full contact details to Swarn Jaitly first retained search firm for the of the New Delhi office he is at [email protected]. Alternatively, hospitality industry in India, HVS responsible for all HVS activities please visit our website Executive Search also provides in the region including the www.hvs.com and register services in areas of HR Consulting Consulting & Valuation, yourself. and Compensation Survey & Executive Search, Marketing & Design. In addition to its New Communication Services and About HVS Delhi office, HVS Executive Technology Web Strategies. HVS Hospitality Services is the Search has international offices in world’s leading full-service New York, London, Moscow and Manav holds a Masters degree in consulting and appraisal firm Hong Kong. In India HVS Food Service Management from devoted exclusively to the Executive Search have offices in New York University (NYU), hospitality industry. Founded in Mumbai and Hyderabad. prior to which he completed his 1980 in the United States, the undergraduate education in hotel Earlier this year we added two company has 24 offices across the management at NYU. He is also additional services – these include globe. Since 1980, HVS has a regular speaker at various Marketing and Communication consulted with over 17,000 hotels hospitality / real estate industry Services and Technology Web in more than 70 different conference and plays host to the Strategies. countries worldwide. The South annual Hotel Investment Asia office is based out of New HVS Marketing and Conference – South Asia Delhi, India and has just Communication Services (HICSA). completed 10 years of its specializes in conceptualizing existence. and implementing marketing Juie Achar, Consulting & strategies that position a brand, Valuation Analyst with HVS, The New Delhi team has worked focus on consistency of experience New Delhi, has assisted him in on projects ranging from and touch points rather than co-writing this article. Avantika feasibility and marketing studies; products and services and Vijay Singh, Associate with HVS valuation of hotels; residual land maximize Web 2.0 through Executive Search and an HVS value assessments; and operator cost efficient Search Engine editor, has also contributed to the search & management contract Optimization and Consumer article.

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