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www.knightfrank.comRESEARCH
INDIA
HOTELReviewKnight Frank
HIGHLIGHTS! The Indian hotel industry, a significant stakeholder of the tourism sector,witnessed the trickle down effect of the global crisis.
! Foreign tourist arrival growth was marginal during Jan-Oct 2008 and recorded at
4.32 million as compared to 3.95 million during the same period in 2007.
! The impact of the recent terrorist attack on Mumbai city was adversely felt in the
Mumbai hotel industry as well as other markets.
! The growth of foreign tourists inflow pegged at around 15-16% in the beginning of
2008, is now expected to be around 10%.
! Over 42,000 new rooms are expected to be added to current inventory across 10
cities by end-2012.
Q4 2008
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INDIAHOTELReview
The initial slowdown of the US economy
during the end of 2007 and early 2008 did
not raise much concern among the policy
makers and economic managers of the
country. It was argued that the Indianeconomy would be relatively immune to this
crisis because of its strong fundamentals
and apparently well-regulated banking
system. However, with the beginning of FY
09, the major economies in Europe and Japan
started declining, giving out strong signals of
global financial and economic crisis. In later
developments, fast growing countries like
India and China were also affected by the
heat of this crisis. The extent of the impact of
the economic slowdown on the growth of the
Indian economy can be gauged by the factthat it's growth has declined to 7.6% in the
second quarter (July -September) of FY 09 as
compared to 9.6% recorded in the same
period during last year. The official growth
forecast for FY 09 has been revised downward
to 7%. The IT/ITES, real estate and the
financial sectors, which in the past had been
primarily responsible for driving economic
growth, are the worst hit with substantial
reduction in business activities and high
lay-offs. The manufacturing sector has
experienced dismal growth and the equity
markets have hit multi-year lows. Domestic
inflation touched a high of 12.63% in the
02
second week of August. However, in the past
few months the tight monetary policy of the
government has been able to tame the
inflation rate considerably. On the external
trade front, exports have declined for the first
time in the month of October in the last seven
years and the Rupee has depreciated (against
US dollar) more than 25% during the last 5-6
months. In a nutshell, it can be said that the
financial sector shocks, depressed business
confidence and slowing consumption
demand have dented the country's economy
to a significant level.
Meanwhile, the hotel industry, which is a
significant stakeholder of the Indian tourism
sector, witnessed the trickle-down effect of
the global crisis as well. The year 2007 had
been a successful year for the industry as it
benefitted extensively from the growth of the
country's economic activities. Enhanced
business and leisure travel from abroad
helped India to record 5.08 million of foreign
tourists in 2007, an increase of 14.3% over
2006. With more than 9% GDP growth in
2007, the economy looked buoyant with new
job opportunities, rise in salary and
disposable income and a high growth
trajectory. Of late, the effects of the global
economic meltdown and downturn of the
Indian economy are visible on the tourism
sector. Foreign tourist arrivals during the
period January-October 2008 was recorded at
4.32 million as compared to 3.95 million
during the same period in 2007, indicating
moderate growth of 9.4%. Notably, a large
proportion of the foreign tourists who came
to India in 2007 belonged to the United
States and Britain, those being amongst the
hardest-hit countries in the global economic
slowdown. Most of the domestic companies
have drastically reduced their
conferences/conventions and business trips
in order to reduce pressure on their margins.
According to Knight Frank Research, there are
currently close to 42,022 rooms across the
5-star Deluxe, 5-star, 4-star and heritagecategories in planning or under-construction
in the cities of NCR, Jaipur, Kolkata, Mumbai,
EDITORIAL Pune, Goa, Bengaluru, Hyderabad, Chennaiand Kochi. The study also revealed that tillQ3 2008, the average occupancy rate across
these ten cities in the 5D, 5-star and 4-star
categories was around 68% and the Average
Room Rate was about Rs.7,476. Significantly,
it was observed that occupancy rates
declined by around 10-15% across the
premium segment of hotels since the past
one year, while the budget hotels maintained
their previous levels.
In addition to the cascading effects of the
ongoing economic crisis, the tourism sector
in India was further hit by the terrorist attacks
in Mumbai. The attack has had a direct
impact on this sector since it has targeted
premium category hotels and foreigners. The
period October-February being the peak time
for the tourism sector in India, even a short
term effect of the attack is likely to have a
substantial impact on the revenue generation
of the hotel industry. Industry experts had
pegged the growth of foreign tourists' inflow
at around 15-16% in the beginning of 2008.
However, due to the economic crisis and
terror attack, the year-on-year growth of the
number of foreigners is currently expected to
be around 10%.
Given the current economic scenario as well
as the uncertainty brought about by the
recent attacks on foreigners, the Indian hotel
industry appears to be on shaky ground.
While most of the premium hotels faced room
cancellations after the Mumbai attacks, the
dips in occupancy rates are expected to be of
short term. As a matter of fact, the global
economic turmoil did not have much impact
on the ARRs, as evident in this report. Major
hotel players are expected to go ahead with
their projects, while keeping a low profile on
their expansion plans. Besides, a number of
them have ventured into serviced
apartments, which is touted to be the most
preferred segment to attract long-stay
business travellers. The revival of the
country's economy shall dictate the way
ahead for the hotel industry in the next 12-15
months.
Figure 1
Distribution of supply by 2012*
Source: Knight Frank Research
NCR
13%
Mumbai14%
Goa
7%Pune
15%
Jaipur
3%
Kochi
4%
Hyderabad
15%
Kolkata
8%
Chennai
9%Bengaluru
12%
* Supply includes upcoming rooms in 5-star Deluxe, 5-star &
4-star hotels
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Overview
A niche combination of luxury and
sophistication has led the NCR to become
one of the prime destinations in the country
for leisure and business tourism. The NCR,
including the national capital New Delhi and
the satellite towns of Faridabad, Gurgaon,
Noida and Ghaziabad, form a substantial part
of India's key economic zones. Factors such
as its rich history, excellent national and
international connectivity and the access itprovides to the northern hill stations render
the region one of the most favoured
destinations for trade, commerce and tourism.
Rapidly improving infrastructure, widespread
economic activity, availability of skilled
manpower and decentralisation of urban
development policymaking have in recent
times triggered growth in the region. Further,
the construction of the DND Expressway and
Gurgaon Express Highways, phased
completion and rapid spread of the DelhiMetro Project and growth of the IT/ITES,
automobile and pharmaceuticals sectors
have strengthened the economic and
business sector, resulting in increased
business travel to this region.
Due to the NCR's booming industrial and
trade activity and proximity to the northern
hills, the region not only witnesses a lot of
transitional tourists, but also plays host to a
large number of foreign and domestic
business and leisure travellers. Factors suchas the NCR's central location, state-of-the-art
03
NATIONALCAPITALREGION(NCR)
infrastructure and well established trade and
commerce sector differentiate it from India's
other metro cities. A major proportion of hotel
business generated in the NCR comprises
international travellers, and about 70% of the
total foreign travellers to the NCR are
business travellers.
Over the last few years, tourism in the NCR
has grown to include heritage tourism,adventure tourism, medical tourism and eco-
tourism. Various segments, including
domestic and international corporate
travellers, bureaucrats, sportsmen and
transitional tourists form the main clientele
for the hospitality sector. New Delhi, as the
nation's capital, regularly hosts various
political meets that augment the demand for
hotel rooms in the region. Healthy industrial
growth and better infrastructure, both of
which are conducive for trade events, have
boosted business traffic and demand for
business hotels.
The NCR has witnessed a considerable
increase in the year-on-year number of
foreign and domestic travellers. The
compounded annual growth rate for foreign
and domestic travellers to the NCR region has
been 12.7% and 22% respectively since
FY 2002-03. Demand pressure in the region
has been encouraging developers to venture
into new hotel projects.
Current Scenario
Trident, Gurgaon
0
12,000
10,000
8,000
6,000
4,000
Source: Knight Frank Research
Figure 2
Movement in ARR (5D,5,4-star Hotels)
2004
2,000
2005
2006
2007
Q3
2008
Rs.
Source: Knight Frank Research
Figure 3
Occupancy Rate (5D,5,4-star Hotels)
64
80
78
76
2004
74
2005
2006
2007
Q3
2008
72
70
68
Percent(%)
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Radisson, Gurgaon
Currently, the total room inventory across the
NCR is approximately 11,000 rooms. Out of
the existing inventory, 63% of the rooms are
in the 5-star Deluxe and 5-star category, 15%
are in the 4-star category and 22% in the
budget segment. The growth in the number of
foreign and domestic business travellers to
the region is reflected in the growth in room
supply in the 4-star category. Two hotels in
this category, namely The Ramada Plaza, with
a room inventory of 445 rooms, and The IBIS
Hotel, with a room inventory of 217 rooms,
became operational during 2008. During the
early part of 2009, the Claridges Group is
expected to introduce an additional supply of
240 rooms in the 4-star category in SurajKund.
Between FY 2004-05 and FY 2006-07, the
average occupancy across the NCR hotels
grew from 70% to 79%. In FY 2007-08, the
occupancy rate was approximately 77%,
which is expected to further decline by the
end of FY 2008-09. This marginal decline in
occupancy levels can be attributed to the
global economic slowdown, political unrest
in Nepal & Tibet, the Gujjar movement in the
NCR and bomb blasts in various parts of the
country.
ARR in the region has gradually increased
from Rs.5,000 in FY 2004-05 to Rs.7,500 in
FY 2006-07. As on the third quarter of 2008,
the ARR was is approximately Rs.10,500.
Room revenue contributes almost 60% of the
total revenue generated in the hotels while
the Meetings, Incentives, Exhibitions and
Conferences (MICE) segment accounts for
approximately 15% of total revenue.
The revenue share of the Food & Beverage
(F&B) sector is limited due to competition
from local restaurants and food chains.
Remunerations and salaries represent the
major operational cost for NCR hotels.
With an inventory of close to 7,000 rooms as
of FY 2007-08, 5-star Deluxe and 5-star hotels
comprise the largest share of total room
inventory in the NCR. The amalgamation of
high class luxury rooms and business
conferencing facilities and services enables
this segment to cater to a mix of leisure and
high-end business travellers to the region.
The niche clientele of this segment has
helped it achieve a steady ARR growth rate of
approximately 15-20% since FY 2005-06. The
ARR value in FY 2007-08 for the segment was
approximately Rs.10,000. In the next few
months, the growth in ARR values are
expected to witness a slowdown, primarily
owing to the security threat in the countryand the global recession, which has forced
several domestic and international
companies to scale down travel and
outstation stay of employees. The occupancy
across the segment for the year FY 2007-08
was around 75%.
In 2010, the NCR will host the Commonwealth
Games, which will attract a lot of sports
tourism from across the globe. Foreseeing
increased demand for room nights, a number
of hoteliers are initiating new projects in theregion. By the end of 2010, the NCR is
5-star Deluxe and 5-star Hotels
expected to witness an additional supply of
close to 3,500 rooms in the 5-star Deluxe and
5-star category. Brands like The Crowne Plaza,
Radisson, Indus Group and the Taj Group will
all contribute towards the total supply. It
remains to be seen whether this surge in
supply is sustainable once the
Commonwealth Games are over.
04
With an
inventory ofclose to 7,000
rooms, 5-star
Deluxe & 5-star
hotels
comprise the
largest shareof total
room
inventory.
4-star Hotels
The NCR being the centre for a lot of
commercial business activities, political
meets and healthcare development, the
number of business travellers to the region is
high. With about 65-70% of corporate
clientele, the 4-star segment witnessed an
average occupancy of 85% in FY 2007-08. The
IT/ITES sector and the automobile and
pharmaceutical industries have been the
major demand drivers in this segment. The
ARR during the FY 2007-08 was Rs. 7,600.
The current room inventory for 4-star hotels in
the NCR is 1,623 rooms. By the end of 2010,
the segment is expected to see an additional
room supply of 1,800 rooms. Micro-markets
in NCR like Gurgaon, Noida and Greater Noida
will contribute towards a major share of this
additional supply.
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Budget Hotels
Corporate travellers seeking accommodation
for longer durations prefer budget
accommodation as compared to high-end 5
and 4-star properties. With basic
accommodation services like air-conditioned
rooms, in-house restaurants, laundry
facilities and gymnasiums, budget hotels in
the NCR market have achieved a high average
occupancy of 82% during the year FY 2007-08,
while the ARR for budget hotels was Rs.3,000.However, the global economic slowdown is
having an impact on the business of these
budget hotels as well. With corporate houses
cutting costs and reducing business travel
and travel durations, occupancy during the
year FY 2008-09 is expected to dip marginally.
05
is forecasted to continue for about another
month, especially as foreign government
agencies have declared India to be unsafe for
travel. The revival of the industry post the
Mumbai attacks is expected to take up at the
beginning of 2009. Hotel authorities in the
NCR have taken up various measures to
maintain high occupancy levels during this
time of distress. Hotel security is being
beefed up across the board, and certain
hotels are tying up with travel authorities to
maintain continuity of business. Rooms are
available at a discounted price, which is
expected to lower the ARR for the month of
December 2008 by about 20%.
In the long run, adequate infrastructure
development will be in place to ensure a
healthy hospitality industry within the NCR.
Encouraging government policies such as the
entitlement to duty-free imports of hospitality
products and services have facilitated
considerable capital inflow from the global
market. Recent transactions of hotel plots at
prices which are thrice the reserved level
show the growing interest of investors in the
region.
As part of the 2008 Union Budget, the
Finance Minister announced the extension of
the five-year tax holiday for 2-star, 3-star and
4-star hotels and convention centres
specifically catering to the Commonwealth
Games in Delhi, Gurgaon, Ghaziabad and
Faridabad. Due to this, the local and
international developers have initiated more
hotel projects in the region. To benefit from
this tax holiday, projects are required to be
constructed and operational anytime
between 1st April, 2008 to 31st March, 2013.
Due to high land cost and with a view to
mitigate risk, the concept of hotels in malls is
also flourishing. Budget hotels in malls which
offer shopping experience with entertainment
facilities under one roof are eliciting attention
from various hospitality players. 'The Leela'
Hotel in the Ambi Mall and 'Clarks Inn' in the
Pacific Mall are examples of such projects.
Developers like Unitech and DLF are entering
Jaypee Vasant Continental, Delhi
Minimum Maximum
0
14,000
10,000
8,000
6,000
4,000
Source: Knight Frank Research
Figure 4
Category-wise ARR
2,000
5-star
Deluxe
5-star
4-star
Budget
12,000
Rs.
into joint ventures with international brands
to set up hotels in the region. The Hilton
Garden Inn in Rohini and Saket is a DLF and
Hilton joint venture and The Regent Hotel in
Greater Noida is an upcoming joint venture
between Unitech and Carlson Group.
The entry of international players is expected
to strengthen the NCR market. In order to
promote tourism and hospitality
infrastructure development in India, a
number of PPP initiatives are being
undertaken as joint venture projects with
leading developers like Unitech, DLF and
Parsvnath. Developments like high-speed
express highways, information technology
platforms and energy and power projects are
a few areas where PPP ties are being explored.
Such initiatives are expected to boost
economic growth, and more specifically
hospitality sector growth, in the NCR over the
coming years.Outlook
The hospitality industry in the NCR has been
dented by the global economic recession and
security threat, highlighted by a number of
terrorist attacks across the country this year.
This has led to a dip in the occupancy rates in
the NCR hotels in the third quarter of the
current year. Hotels across the NCR havewitnessed cancellations of about 15-20%
from the foreign international travellers after
the Mumbai blasts. The decline in occupancy
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Jaipur
Overview
Jaipur, the capital of the state of Rajasthan,
has emerged as a fast growing business
centre in North India. Established in the year
1772 by Maharaja Sawai Jai Singh II, the city
has great historic significance attached to it.
Being the first planned city of India, the state
government has not just taken ample care to
preserve its historical sites, but has alsomade concerted efforts to ensure widespread
infrastructure developments. Affordable
generated by the business segment vis--vis
the leisure segment. Increasing corporate
presence in Jaipur is changing the profile of
the hospitality industry in Jaipur. Services like
conference rooms, board room layouts and
executive lounge services are extremely
sought-after in the city. September to March
is considered to be the 'Season' period for
the leisure segment, whereas for the
business segments there is no such
demarcation.
06
Source: Knight Frank Research
Figure 6
Occupancy Rate (5D,5,4-star Hotels)
0
80
70
60
50
40
2004
30
2005
2006
2007 Q3
2008
20
10
Percent(%)
Source: Knight Frank Research
0
7,000
6,000
5,000
4,000
3,000
Figure 5
Movement in ARR (5D,5,4-star Hotels)
2004
2,000
2005
2006
2007
Q3
2008
1,000
Rs.
Sawai Man Singh, Jaipur
Meetings, Incentives, Conventions and
Incentives (M.I.C.E) rates, coupled with the
historic ambience of the city are now making
Jaipur a favoured destination for IT/ITES,
pharmaceutical and Banking & Insurance
companies to organise their seminars and
meets. The city, which was previously
recognised more as a key tourist destination,
is now being explored as an operational base
for a number of IT/ITES and pharmaceutical
companies.
Factors like low operational cost, availability
of cheap and abundant labour, favourable
economies of scale and low attrition rates
have been responsible for lending the city a
new outlook. As a result, the real estate
scenario in Jaipur has witnessed substantial
growth in the past 3-4 years. This has been
amply supported by the presence of big
projects by Emaar MGF, Ansals, Mahindra,
OMAXE, Unique Builders and other leading
developers.
The past trends reveal that heritage and
culture tourism were the major demand
drivers for hospitality in Jaipur. However, of
late, a reasonable amount of hospitality
demand is emanating from the corporate
sector as well. Important pharmaceutical
residential conferences, IT and banking
meets, etc. are changing the hospitality
outlook of the city. Currently, around 40% of
the total hospitality demand in Jaipur is
Current Scenario
Services like
conference
rooms, board
room layouts
and executive
loungeservices are
extremely
sought-after
in the city.
In recent times, the total inventory of hotel
rooms across all segments has seen an
upward trend.
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Country Suits Inn, Jaipur
08
This is also adversely affecting the revenue
generating potential of important hospitality
pockets across India. Moreover travellers are
now finding alternative leisure destinations.
The recent terror attacks in Mumbai have had
a negative impact on Jaipur's hotels business
as well. In the week post the Mumbai blasts,
the hotels in Jaipur have seen an average
cancellation of reservations of about 20-25%.
Although the months of Nov-Dec are
considered to be the peak hospitalityseasons in Jaipur, a number of foreign leisure
travellers are either delaying or cancelling
their trips to the city. Major pharmaceutical,
IT and banking companies, which generally
schedule their residential conferences in
January in Jaipur, have either deferred or
rescheduled these events to late February.
The impact of the attacks on Mumbai cannot
be assessed as of now entirely as it
completely depends on how the international
authorities comment on the security situation
in India.
The revival of the industry depends on how
the national and international media portray
the entire situation. Concrete security
measures are being incorporated by the hotel
administrations in Jaipur. These measures
include training of housekeeping staff on
security standards and rigorously conducting
identification checks for all walk-in travellers.
In light of declining demand for room nights,
hotels across Jaipur have reduces tariffs by
30-35%.
Despite the temporary slowdown caused by
the recent terror attacks, all infrastructure
initiatives that were proactively planned by
the central and state authorities to further
strengthen the position of Jaipur as one of the
preferred leisure destinations in India are still
potential deliverables. With Rs.200 billion
worth of infrastructure investment proposed
in Rajasthan, Jaipur is expected to see better
infrastructure support and provisioning of
amenities within the city limits. Better
connectivity to the city on account of low-cost
airlines has led to increased consideration of
the city as a venue for conventions and high-
profile marriages.
High-end conferencing facilities with state-of-
the-art business infrastructure support have
boosted the hospitality demand from the
corporate segment. This will further augment
the share of room revenue in the total
revenue generation pie and also create new
demand for rooms.
The Hotel Policy 2006 provides special
provisions for development of hotels in
Jaipur. The policy includes reservation of land
parcels within the city for hotel projects,
availability of hotels plots at a reduced
reserved price (almost 50% of commercial
reserved price), 100% exemption on
entertainment tax and 100% exemption from
land conversion charges. All these provisions
are expected to increase the supply of hotel
rooms in the city.
Emerging destinations for new hotel projects
include Delhi Road due to the development of
industrial parks, Ajmer Road on account ofdevelopment of integrated townships and
SEZs and Tonk Road owing to new
commercial developments.
Jaipur, with its historical charm, will continue
to attract international tourists. Growing
corporate business will further boost the
hospitality business. With the city emerging
as a major centre for gems and jewellery and
textiles exports, a further boost to the hotel
sector is expected. Seasonal occupancy
levels of around 80-85% clearly suggest thatthere is an ample demand for hotel rooms in
Jaipur. With high seasonal demand, the
expected supply of 1,450 new rooms by 2010
will bring equilibrium in the market,
stabilising the volatility in ARR movements.
With high
seasonal
demand, the
expected
supply of 1,450
new rooms by
2010 will bring
equilibrium in
the market.
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Source: Knight Frank Research
Figure 9
Occupancy Rate (5D,5,4-star Hotels)
0
100
80
60
40
200
4
200
5
200
6
200
7
Q3200
8
20
Percent(%)
200
3
09
KOLKATA
Overview
Kolkata, the capital of West Bengal, is the
main commercial and financial hub of eastern
India. Formerly the capital of India during the
British rule, the city is famed for its rich
cultural heritage and distinct socio-political
set up.
Kolkata, of late, has been actively competing
against other Indian cities as a preferred
corporate destination. The emerging IT profile
of the city and the consequent generation of
all segments, including the budget hotels. A
majority of the proposed supply is
concentrated towards north-eastern Kolkata
with 69% of the hotels coming up in this part
of the city. Out of this, the maximum supply is
expected to be contributed by the EM Bypass
micro-market, while approximately 1,012
rooms are expected to be added to the
premium segment in the Rajarhat micro-
market by 2013. These rooms are expected to
cater to the demand emanating from the
commercial developments in Rajarhat as well
as the IT hub at Salt Lake Sector V. The
EM Bypass stretch has only one operational
5-star Deluxe hotel (ITC Sonar Bangla) while
four additional premium hotels are expected
to be operational by 2013.
The period between 2002-07 was stagnant
with no supply in the 5-star and 5-star Deluxe
segment. The city witnessed considerable
increase in the room supply with the entry ofITC Sonar Bangla and the Hyatt Regency in
2002, which accounted for an addition of
around 450 rooms to the city's hotel
inventory.
At present, approximately 85% of the existing
room stock in Kolkata falls under the 5-star
and 5-star Deluxe category. The rack rates for
these up-market hotels are relatively higher
and occupancies have been consistently
increasing since the last four years. The gap
between the demand and supply of hotelroom has also widened, with no room
addition since 2002. All these factors have
together led to a healthy increase in ARR
values across segments. However, the ARRs
are expected to dip marginally in the next
three years, post 2009. This can be attributed
to the quantum of supply expected to be
operational in the forthcoming 2-3 years.
About 800 rooms are expected to be added in
the 5-star and 5-star Deluxe segment by 2012,
out of which around 225 keys will be ready in
2010.
5-star Deluxe and 5-star Hotels
0
8,000
7,000
6,000
5,000
4,000
Source: Knight Frank Research
Figure 8
Movement in ARR (5D,5,4-star Hotels)
2004
2,000
2005
2006
2007
Q3
2008
Rs.
3,000
1,000
2003
real estate opportunities have led prominent
real estate developers to take up significant
land holdings in the suburban locations. The
Eastern Metropolitan Bypass is being
increasingly viewed as the Central Avenue of
modern Kolkata while Rajarhat is being
promoted as an IT hub in the east of Kolkata.
The city has also been attracting a number of
real estate investors and developers with
financial muscle. These investors, both
foreign and Indian, have identified prime
areas for investment while developers such
as DLF and Unitech already have projects
operational in the city.
In recent times, Kolkata has witnessed
significant demand for hotel rooms, leading
the hospitality sector to thrive after a lull of
almost two decades. This could be primarily
attributed to the strong growth of the IT/ITES
sector in the city. There has been a
substantial increase in the demand for good
quality short-stay accommodation from
Indian as well as foreign executives. This
essentially implies that increased commercial
activity in the city has been instrumental in
creating higher demand for hotel room
nights. Also, with Kolkata being the only
metropolitan city for the entire eastern belt of
the country, most of the hotels have high
occupancies arising out of increased tourist
inflows.
Most of the existing hotels in the city are
located closer to the CBD, as the commercial
developments in the peripheral micro-
markets came up only recently in the last 4-5
years. While the city currently has a dearth of
hotel operators in the city, in the next 34
years, Kolkata is set to witness an influx of
international brands operating in Rajarhat,
Salt Lake and EM Bypass.
Over the period 2000-07, hotel room supply
witnessed a sluggish average annual growth
rate of 6%. Significantly, a total of 3,831
additional room keys are expected to be
added to the market by the year 2012 across
Current Scenario
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10
Some of the major brands expected to be
operational in the coming years include joint
venture projects by DLF and Hilton (239
rooms, EM Bypass); Unitech and Ritz (200
rooms, Tollygunge); DS Group and Carlson
(320 rooms, near the airport) and Berggruen
Group (Rajarhat). The Apeejay Surrendra
Group Park Hotels Ltd. is also coming up with
a 5-star hotel on the EM Bypass. However, a
few of the hotel projects announced have
been stalled owing to the current economic
slowdown.
The ARR value for the 5-star and 5-star Deluxe
segment was around Rs.6,310 in 2007, which
came down to an average value of Rs.6,080
during the third quarter of this year. The
average occupancy rate in the city recorded
74% during the same period this year, which
reflects a decline of about 7% over the past
year's level. This decline in ARRs and
occupancy rates reflects the low market
sentiments as well as the slackening rate of
growth in the IT/ITES sector, which was
primarily responsible for driving the demand
for hotel rooms in the city.
The occupancy rates of the hotels in the 4-
star category have been higher as compared
to those of the 5-star and 5-star Deluxe hotels
in Kolkata due to the lesser number of room
keys available. Around 437 rooms are
expected to be added to the 4-star category
by 2012. The ARR figures stood at an averagevalue of Rs.5,025 during
May-Sept 2008.
Amongst the new 4-star projects underway,
note can be made of the 150 room hotel by
Bengal Ambuja and a 242 room project by the
hospitality group Marriott to be developed by
the Unitech Group. Both these projects are
located in Rajarhat and are scheduled to be
operational by 2011-12. Meanwhile, Peerless
Inn, an existing 4-star hotel, has plans for
expansion in terms of addition of rooms andis expected to be converted into a 5-star
Deluxe hotel by 2010.
4-star Hotels
Budget Hotels
In Kolkata, most of the budget hotels
generate a major proportion of revenue
through corporate travellers visiting the city.
Generally, these hotels have a clientele base
of executives from the pharmaceutical sector,
manufacturing, telecom industry as well as
the IT/ITES sector. Many of these hotels also
have tie-ups with travel portals for getting
customers. Besides, as the city boasts of the
only international airport in the region, there
are a large number of tourists who visit the
city for transit purpose. In the past, these
hotels played host to a large number of
Bangaldeshi tourists, who would visit the cityto avail of medical services or to attend
weddings of relations in the city. However, of
late, due to security threats, this trend has
reduced to some extent. Besides, the
percentage contribution from the leisure
segment has been declining over the years,
from around 15% in 2005 to an average of 8%
in 2007.
At present, the budget hotels have ARR
values in the range of Rs.2,860-3,200 and
enjoys an occupancy rate of around 77%during the off-peak season and around 83%
during the peak season of Oct-Feb. While the
economic recession has impacted the
premium hotels and the 4-star hotels to some
extent, the budget hotels have not been
affected perceptibly. This can be attributed to
the cost cutting strategies applied by many
firms who are increasingly shifting their
executives to budget hotels from 5-star and 4-
star hotels. Also, the lack of new supply in
this category of hotels has been responsible
for the high occupancy levels. Going forward,
around 400 rooms are expected to come up
in the budget segment by the end of 2012.
The period between the years 2002 to 2007
did not see any significant addition to the
room stock in the city of Kolkata. Besides, no
supply addition is expected for the next year
as well. This has led to an increase in the
demand-supply gap, allowing most of the
hotels in Kolkata to run at higher occupancy
levels. However, with majority of supply being
added in 2010 and 2012, the occupancies are
expected to come under pressure. Further,
the ARRs are also estimated to stabilise due
to competitive supply in the market.
Besides the supply in the pipeline, a number
of factors are responsible for the projected
low occupancy rates and ARRs. The global
economic slowdown has led the hotel
industry to a slump. Meanwhile, the
controversy over the Tata Nano plant at
Singur, which ultimately saw the Tatas
pulling out of the state, has created
downbeat sentiments towards Kolkata as an
investor-friendly region. Another factor
dampening the Kolkata hotel market has
been the terror attacks on Mumbai, which
have reduced the projected number of foreign
tourists arriving in the country.
All these factors notwithstanding, the hotel
industry in Kolkata can still look forward to a
positive market scenario with majority of the
developers going ahead with their hotel
projects. By the end of 2012, the Kolkata hotel
market shall boast of a number of
international hotel brands in the city.
Outlook
Minimum Maximum
0
10,000
6,000
4,000
2,000
Source: Knight Frank Research
Figure 10
Category-wise ARR
8,000
Rs.
5-star
Deluxe
5-star
4-star
Budget
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Source: Knight Frank Research
Figure 12
Occupancy Rate (5D,5,4-star Hotels)
60
78
76
74
72
2004
70
2005
2006
2007 Q3
2008
Percent(%)
2003
68
66
64
62
0
10,000
8,000
6,000
4,000
Source: Knight Frank Research
Figure 11
Movement in ARR (5D,5,4-star Hotels)
2003
2004
2,000
2005
2006
2007
Q3
2008
R
s.
Mumbai
Overview
Mumbai, the financial capital of India and the
state capital of Maharashtra is one of the
fastest growing metros in the country. The
Reserve Bank of India, the two most active
stock exchanges in the country viz. National
Stock Exchange and Bombay Stock
Exchange, the Securities and Exchange Board
of India (SEBI) and numerous national and
international financial service providers have
their headquarters in Mumbai.
ARRs have declined on an average by 5-10%
in South Mumbai and 10-15% in North
Mumbai during the period May-Sept 2008.
The reason for the difference between the two
regions is that South Mumbai, due to its
relatively more saturated demand, is
expected to exhibit greater resistance to
declining rates. Due to a sharp increase in
operating costs, the 5-star Deluxe and 5-star
hotels, with more voluminous operations, are
under severe pressure to lower rates in order
to support occupancy in the face of reduced
demand. 4-star and budget hotels are better
placed to wait and see how the market
shapes up in the coming months before
being forced to adjust their rates.
North Mumbai has a larger concentration of
hotels in the 5-star Deluxe and 5-star
categories with a total of 16 hotels and an
inventory of around 4,321 rooms. The region
comprises the majority of the hotel roomstock, to the tune of around 68%, with the
rest located in South Mumbai. These hotels
witnessed an average occupancy of 75% in
FY 2006-07 and this rose to around 78% in
FY 2007-08. However, occupancy levels
across these hotels have seen a drop of
around 13% during May-Sept 2008. This can
be largely attributed to the slowdown in the
global markets given the fact that business
travellers contribute the largest percentage
share of clientele across these categories of
hotels in Mumbai.
5-star Deluxe and 5-star Hotels
11
Taj Mahal, Mumbai
Besides financial and port related activities,
it is also the primary centre for the art and
entertainment industries.
Over the last few years, developments like
the widening of the Mumbai-Pune highway
and expansion of the IT/ITES sector in the city
has infused optimism to the Mumbai real
estate market. This, in turn, triggered
widespread developmental activities in this
sector. Although the city comprises the Island
City, Western Suburbs, Central Suburbs, NaviMumbai and Thane, the hotel industry can be
distinctly divided into two districts, viz.,
North Mumbai and South Mumbai, based on
the business mix. While the hotels in North
Mumbai, especially those in proximity to the
airport, mainly cater to the corporate
travellers (88-90%) and airline crew (8-10%),
hotels in South Mumbai have a mix of leisure
(20%) and business (80%) travellers.
Currently, Mumbai houses 74 government
approved hotels across all categories with a
total count of 9,503 rooms. In terms of the
boom experienced by the hospitality industry,
particularly during the last year, this might
have been viewed as a supply shortage.
However, due to the current global economic
crisis, the sector across the board is facing a
turbulent phase. Leisure and business travel,
particularly that emanating from the financial
sector, has reduced on account of a general
liquidity crunch and exorbitant airline fares
resulting from a hike in fuel surcharges.
Current Scenario
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Trident and Oberoi Mumbai
12
While the ARR in North Mumbai hotels was
Rs.7,416 in FY 2006-07, these hotels
witnessed ARR in the range of Rs.8,000-
13,000 in FY 2007-08. With ARR figures
dropping by around 5% till September 2008,
the Revpar has also been reducing
substantially in the past 5 months.
There are total 6 hotels in South Mumbai in
the 5-star Deluxe and 5-star category with an
inventory of approximately 2,015 rooms.
These hotels have also been impacted by theeconomic slowdown and have recorded
average occupancy level of 60% during the
period of May-Sept indicating a drop of
around 10% as compared to an occupancy
level of 70% witnessed in FY 2007-08. The
South Mumbai hotels achieved an annual
ARR in the range of Rs.9,600-14,700 in
FY 2007-08. This signifies an increase of
around 20% in comparison to FY 2006-07
when the reported ARRs ranged between
Rs.7,339-10,652. These hotels have
witnessed a drop in ARR of around 6% till
September 2008.
Two notable hotel projects in 2008 include
the Four Seasons at Worli, which became
operational early this year and Trident at BKC,
which is expected to be completed by the end
of the year.
These projects will comprise adding 202 and
436 rooms respectively. In all, approximately
5,078 rooms are estimated to come up in the
5-star Deluxe and 5-star categories by
end-2012.
Most hoteliers were sceptical about reaching
the budget targets that were set in 2007 as it
did not predict the global downturn and
hence were largely overestimated based on
the previous year's performance. While hotels
were awaiting occupancy level results overthe next two months which would be the
typical peak season in the industry in order to
estimate whether they would be able to meet
their targets or resort to decrease room rates,
the recent attacks on the city have forced
hoteliers to reduce their tariffs by 15-20%.
Many of the hotels are now looking for
various cost cutting strategies and ARRs are
expected to reduce further by around 10-15%
over the next few months.
Of the 14 operational 4-star hotels in Mumbai,
13 are distributed between South Mumbai
and Juhu/Vile Parle in North Mumbai. The
existing inventory of 4-star hotels in Mumbai
is 1,191 rooms, which accounts for 15.4% of
total room inventory across the 5-star deluxe,
5-star and 4-star categories. Approximately
692 new rooms will be added to the total
supply of 4-star rooms in Mumbai by the end
of 2012.
The ARR in this category, which during the
FY 2006-07 hotel industry boom rose to
Rs.5,870 from Rs.5,036 in FY 2005-06, has
risen further during FY 2007-08 to Rs.6,274.
This reflects the fact that 4-star hotels are
facing relatively less pressure to ease their
rates when compared to the 5-star category.
In fact, most have pressed ahead with their
scheduled rate increase this October.
However, occupancy rate, which averaged
86.6% in FY 2006-07 from 82% in 2005-06,
has declined during FY 2007-08 to 77.2%.Corporate discounts are prevalent at these
hotels and range from 10-50% depending on
4-star Hotels
the level of corporate demand catered to. The
level of discounts in general could witness a
rise as hotels look to buffer demand without
having to slash rates.
Hotels in this category cater more to domestic
demand with 59.5% of total demand
accounted for by domestic travellers and
40.5% by foreign travellers. Within the
aforementioned mix, leisure travel owes more
to foreign travellers who on average account
for 55% of total leisure demand in the 4-star
category, whereas 75% of total business
travel is accounted for by domestic business
travellers as the foreign business travellers
prefer the higher-end 5-star and 5-star Deluxe
hotels.
Minimum Maximum
0
20,000
10,000
5,000
Source: Knight Frank Research
Figure 13
Category-wise ARR
15,000
Rs.
5-
star
Deluxe
5-
star
4-
star
Bud
get
Approximately
692 new rooms
will be added
to the total
supply of 4-
star rooms in
Mumbai by the
end of 2012.
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JW Marriott, Mumbai
The total revenue in these hotels is primarily
accounted for by Room and F&B, with the
former constituting around 70% and the latter
30% of total revenue. Those hotels that are
providing facilities such as nightclubs
(examples being The Gordon House Hotel in
Colaba and Ramee Guestline Juhu) and
health clubs also snare a share of total
revenue through the same.
Budget hotels in Mumbai are more evenly
distributed around the city. Besides the
South Mumbai locations, a good number of
hotels in this category are located in areas
such as Juhu, Andheri, Bandra, Khar,
Navi Mumbai and Powai.
The ARR in this category, which during the
FY 2006-07 hotel industry boom rose to
Rs.4,360 from Rs.4,100 in FY 2005-06, has
dropped during FY 2007-08 to Rs.4,260.
Occupancy, which during FY 2006-07
averaged 85.98%, up from 82.30% in
FY 2005-06, has declined during FY 2007-08
to 76.10%. The significant difference here
when compared to the 4-star scenario is that
in the face of declining occupancies, 4-star
hotels have the financial cushion to support
their rates, whereas most budget hotels do
not, and hence have slightly reduced their
rates. Corporate discounts offered in this
category range from 10-30%, which reflect the
fact that corporate demand at budget hotels
is more sporadic than voluminous.
Budget Hotels
13
The budget hotels cater primarily to domestic
demand. Approximately 67.6% of the total
demand across all these hotels is accounted
for by domestic travellers and 32.3% by
foreign travellers. The difference in demand
can be attributed to the fact that these hotels
predominantly represent domestic brands.
Outlook
The recent terrorist attacks in Mumbai city
coupled with the ripple effects of the
slowdown in the global economy will severely
impact hotels across all categories with the
premium segment taking the maximum hit
over the next year. Most hotels are canceling
or down-scaling their New Year's parties
which further decreases revenue generation.
While in September 2008, occupancy levelsin South Mumbai were already considerably
low, the recent developments have amplified
the pressure on these hotels. The North
Mumbai hotels, however, will be less affected
due to their proximity to the airport. While
many Mumbai hotels have reduced tariffs by
15-20% to sustain demand, a further decrease
of 10-15% is expected over the next 3-4
months.
On a positive note, various infrastructure
projects like the Bandra-Worli sea link, MetroRail and Nhava-Seva sea link are expected to
enhance connectivity, thereby supplementing
hospitality growth along these corridors in
the long run. Also, the development of the
new airport at Navi Mumbai is expected to
increase hotel demand in the contiguous
micro-markets. A total supply of 5,989 hotel
rooms is expected to be added across the
5-star Deluxe, 5-star, 4-star and budget
categories in Mumbai by the end of 2012,
although what materialises will depend
largely on the duration of the lean patch theindustry is currently going through. At this
juncture, certain Mumbai hoteliers are
contemplating changing the use of land
purchased for hospitality expansion to
commercial use.
Around 67.6%
of the totaldemand in
budget hotels
is accounted
for by
domestic
travellers and32.3% by foreign
travellers.
On an average, 78.3% of revenue for hotels in
the budget category is accounted for by the
room rents and 21.7% is generated from F&B
activities. Approximately 322 new rooms will
be added to the total supply of budget hotels
in Mumbai by the end of 2012.
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Source: Knight Frank Research
Figure 15
Occupancy Rate (5D,5,4-star Hotels)
0
100
80
60
40
2004
2005
2006
2007
Q3
2008
20
Percent(%)
2003
PUNE
Overview
The emergence of IT/ITES sector in the city of
Pune and its consequent boom has
contributed extensively to the growth of the
city's hospitality sector. With the entry of
many reputed Indian and global software
players since 2000, the city has experienced
an annual increase in foreign and domesticcorporate/business travellers in the range of
12-15%. As a result, Pune has recently gained
immense importance as a business tourist
Another notable project in this category is
Gordon House located on Ganeshkind Road
and which is the only Boutique hotel in the
city. Though these two categories account for
40% of the existing stock across the 5-star
Deluxe, 5-star and 4-star hotels, they cater to
nearly 85% of business travellers and foreign
tourists.
The average occupancy in FY 2006-07 was
around 88%, hotels recorded occupancy of
92% in FY 2007-08. While the occupancylevels of these hotels witnessed a marginal
increase in 2007, during the first and second
quarter of 2008, there was a dip of around
9%. This can be largely attributed to the
slowdown in the IT/ITES sector, which is one
of the primary drivers of demand among the
business segment. While the ARR across all
categories in the city has increased
significantly over the past few years, the
premium hotels witnessed a marginal
increase of 4.12% from FY 2006-07 to
FY 2007-08 with ARR in the range of
Rs.6,800-9,300. Due to the decrease in
occupancy levels, ARRs are expected to
remain stable, if not reduce over the next
year.
Many hotel brands like Leela, JW Marriot,
Radissons, Sheraton, etc. are expected to
enter the Pune market over the forthcoming
3-4 years. Approximately 4,275 rooms are
estimated to become operational by end-
2012, accounting for almost 67% of the new
supply in the premium category.
Source: Knight Frank Research
0
9,000
6,000
5,000
4,000
3,000
Figure 14
Movement in ARR (5D,5,4-star Hotels)
2004
2,000
2005
2006
2007
Q3
2008
1,000
R
s.
8,000
7,000
2003
Le Meridien, Pune
destination, a factor which has had a direct
positive bearing on the city's hotel industry.
The potential of this fast developing city and
its hotel market has attracted a number of
major chains. International players like
JW Marriott, Hyatt and Starwood are coming
up with premium hotel properties in the city
in the next two to three years.
During the current financial year, the IT
operations in India have faced a major
setback due to the global economic crisis.
Most of the IT firms, as a cost cutting
strategy, have slimmed down their travel
plans and training activities, and this has
reduced the occupancy levels of the hotels in
Pune relative to last year.
There are only two 5-star Deluxe and four
5-star hotels in the city of Pune. Since Pune
exhibits a radial development, most of these
hotels are located in the Central and North
East Zones of the city where development
was initially concentrated. The two 5-star
Deluxe properties viz. Le Meridian, located at
Raja Bahadur Mill Road, and Sun n Sands
located in Bund Garden, contribute an
inventory of around 314 rooms. At present,
there are a total of 353 rooms in the 5-star
category. Noteworthy amongst them is the
O Hotel located in Koregaon Park by
Starwood that became operational in
mid-2008.
Current Scenario
5-star Deluxe and 5-star Hotels
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Of the total new supply, the North Eastern
and the Central Zones will infuse the
maximum quantum in the 5-star Deluxe and
5-star categories. The heritage hotel at
Saswad built by Orchid group also became
operational in 2008. Two notable upcoming
projects include 'Marriott Courtyard' and
'Gateway Taj' at Hinjewadi.
Pune has 16 hotels in the 4-star category with
a total inventory contribution of about 987
rooms. The Central Zone accounts for around
51% of the total stock in this category across
the city. The clientele base in these hotels
constitutes both domestic and foreign
business travellers as well as foreign leisure
travellers. However, the number of business
travellers and foreign leisure travellers has
reduced in 2008 owing to the global
economic slowdown. The reduction in the
occupancy rates could also be attributed to
the fact that many of the budget hotels havestarted upgrading their services to compete
with the higher category hotels.
ARRs across the 4-star hotels have remained
relatively stable over the past year recording
an ARR in the range of Rs.4,000-7,700 in
FY 2007-08. However, while occupancy levels
increased on an average from around 85% in
FY 2006-07 to 91% in FY 2007-08, the year
2008 has witnessed a decline in occupancies
over the past two quarters.
In total, around 2,113 rooms are expected to
be infused into the Pune hotel market over
the next 3-4 years. While the North Eastern
Zone will contribute 46% of the new supply,
the Central and North Western Zones will
account for 35% and 19% of the supply
respectively. The significant developments in
this category of hotels include Dawnay Day
Hotels India at Nagar Road and St.Lauren at
Mundhwa.
This category of hotel caters to most of the
domestic business travellers from
4-star Hotels
Budget Hotels
engineering and ancillary services aside from
the IT/ITES sector which is the predominant
sector of Pune. Of the total number of budget
hotels in the city, 66% of the current stock is
located in the Central Zone. With
improvements in the city's economic scale,
this category of hotels has observed a steady
growth over the past two years. The average
occupancy rate across this section was
around 70% in FY 2007-08, with ARR in the
range of Rs.2,500-3,500. While the premium
segment of hotels witnessed a marginal
increase in ARRs, the budget hotels
witnessed a significant increase where the
maximum ARR was recorded in the first
quarter.
Around 7 new hotel projects are expected to
be operational by end-2012, adding
approximately 869 rooms to the current
stock. This supply will be evenly distributed
in the three main zones, with the North
Eastern, Central and North Western Zones
contributing 33%, 42% and 25% respectively.
The two notable projects in this category
include those by IBIS in Viman Nagar and
Hotel Surya Pvt. Ltd. in Baner.
Outlook
At present, there are around 35 hotels and 8
serviced apartment projects operating in
Pune across all categories. For close to
around a decade, no new hotel brands
entered Pune. In a significant turn of events,
since the last year, close to 25-30 new hotels
and serviced apartments encompassing all
categories have set up or announced plans of
setting up in Pune. More than 50% of the
upcoming properties in Pune are 5-star
properties, the rest being 4-star, budget
hotels and serviced apartments. The Eastern
suburb of Pune is expected to see a number
of major hotel groups setting up their
projects. LAVASA, an upcoming mega
township, has plans of setting up a 250 room
4-star Novotel spa resort by 2012.
Pune, with its growing IT/ITES sector,
biotechnology parks, automobile and
manufacturing units, along with improved
international air connectivity and readily
available manpower is expected to have a
positive effect on all the real estate sectors
including the hospitality sector in the long
run. Also, due to the increase in number of
expatriate professionals as well as long-stay
business travellers, the potential of the
serviced apartments market has greatly
increased over the years.
Minimum Maximum
0
10,000
6,000
4,000
2,000
Source: Knight Frank Research
Figure 16
Category-wise ARR
8,000
Rs.
5-star
Deluxe
5-star
4-star
Budget
St. Lauren, Pune
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GOA
Overview
Goa has emerged as one of the leading
tourist attractions in India because of its
attractive beach destinations. With a 105 km
coast line of scenic beaches of varying
length, one of the main sources of revenue is
tourism. Besides this, sectors like mining,
shipping and fishing are also some of the key
economic drivers of Goa.
has been steadily reducing in the past two
years. While the number of chartered flights
to Goa increased by 29% in FY 2004-05, the
year FY 2005-06 witnessed an increase of just
4% in comparison to the previous year. This
number reduced further and in FY 2007-08
only 710 flights came to Goa. Traditionally the
city had two major seasons, Peak and off
Peak which extended from Oct- April and
May-Sept respectively. With the reduction in
the number of chartered flights, the hotel
sector in Goa focused more on the domestic
traveller. This led to the emergence of three
distinct seasons post 2006. Season 1 is the
lean period from the end of May-Sept, where
hotels focus on the domestic market and
promote monsoon packages. Season 2
extends from Oct-Nov and Feb-May which
caters to the charter segment as well as
domestic tourists and is considered the peak
season. The months of Dec-Jan are Season 3,
which is now classified as peak-peak season
where almost all hotels earn their maximum
revenues especially from the 23rd Dec to
2nd Jan.
Five years back, North Goa was considered to
be the prime location for most of the foreign
and domestic tourists. However, with the
development of a number of 5-star Deluxe
hotels, South Goa with its virgin beaches has
become a sought after destination for foreign
tourists as well.
5-star Deluxe and 5-star Hotels
Source: Knight Frank Research
0
7,000
6,000
5,000
4,000
3,000
Figure 17
Movement in ARR (5D,5,4-star Hotels)
2004
2,000
2005
2006
2007
Q3
2008
1,000
Rs.
2003
Source: Knight Frank Research
Figure 18
Occupancy Rate (5D,5,4-star Hotels)
0
80
60
40
2004
2005
2006
2007
Q3
2008
20
Percent(%)
2003
Intercontinental The Grand, Goa
Given its strategic linkages by rail and road to
the rest of India, Goa occupies a prominent
position as India's premier iron-ore exporting
port as well.
The state of Goa comprises of 11 talukas but
for administrative purpose, it is divided into
two districts, viz., North Goa and South Goa
with its headquarters in Panjim and Margao
respectively. According to the 2001 census,
the population density in North Goa was
437 per sq. km. while that of the South Goawas 324 per sq. km. Enhanced infrastructure
development and greater frequency of
tourists led to early commercialisation of
North Goa, while South Goa has experienced
gradual and regulated developments.
The development control regulations
encouraged the growth of the hospitality
segment and restricted any other type of real
estate development along the coastline. This
has led to the entry of major hospitality
brands like Taj, The Leela, The Marriot,Intercontinental etc. along prime stretches of
Vainguinim, Miramar, Sinquerim, Candolim,
Calangute, Baga, etc. in the north and
Arossim, Majorda, Varca, Raj Baga Beach,
etc. in the south.
The hotel industry in Goa has grown
extensively over the past three years. While
charters comprised the majority of clientele
during the season of Oct- March, this trend
Current Scenario
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Of the total twelve 5-star Deluxe properties in
Goa, seven of them are located in the south
and comprises an inventory of around 1,818
rooms.
With a contribution of around 747 rooms in
the 5-star category, the premium segment
accounts for a total of approximately 2,565
rooms. Most of the hotels include various
facilities like specialty restaurants, water
sports, gymnasiums, casinos and a mini-golf
course.
While the foreign tourists market is still
responsible for a large share of the revenue
generated in the premium segment, hotels
have now adapted their strategy and in the
past year have been focusing on corporate
and the HNIs of the Indian market. Promotion
of corporate offsites, conferences and even
beach side weddings contribute a significant
amount to the revenue generated. The year
FY 2007-08 witnessed an increase of around
10.25% in the ARR among the 5-star Deluxeand 5-star hotels in comparison to the
previous year. The ARR during the various
seasons ranged from around Rs.5,000-6,000
in the lean season to Rs.6,000-9,000 in the
peak season and Rs.12,000-15,000 in the
peak-peak season. However, the year 2008 is
currently witnessing a slow down in the
market since June. ARR values till September
across these segments were around
Rs.4,000-5,000. Occupancy levels in these
premium category hotels have dropped to
around 45% in comparison to the year 2007
which recorded an average occupancy of
65-70% during the months of Aug-Nov.
While the revenue contribution of F&B in the
north is around 15-20%, most hotels in the
south recorded an F&B contribution of around
25-35% and a cover capture ratio of around75-80% among the charter segment during
FY 2007-08. Approximately 2,490 rooms are
expected to be infused into the Goa market
by the end of 2012. A notable project includes
that by the Taj group which will be coming up
with a hotel in Panjim City.
There are a total of 253 rooms in the 4-star
category. While the ARR in the 4-star category
ranged between Rs.4,800-5,500 for the year
FY 2007-08, this segment recorded a reduced
ARR of Rs.3,500-4,200 since August 2008.
These hotels recorded occupancy levels of
75-80% in FY 2007-08. However, occupancy
levels in these hotels have also reduced
considerably over the past 6-7 months,
dropping to around 56% in the 4-star
categories since August 08. Domestic
tourists constitute 65% of the total tourists in
these hotels and hence this may be one of
the reasons why the hotels have not been as
badly affected as the other premier hotels.Approximately 550 new rooms are expected
to be added to the total 4-star category stock
by end-2012.
The budget category of hotels is increasingly
gaining prominence among the leisure as
well as business travellers. Occupancy levels
in the budget hotels were in the range of
56-62% in FY 2007-08. While the premium
segment hotels are witnessing a significant
drop in occupancy levels, most of the budget
hotels have recorded 10-20% drop in
demand. Though the city hotels witnessed
4-star Hotels
Budget Hotels
only a 10-12% dip in occupancy, properties on
the beach front saw a 15-20% decrease.
The city hotels are still witnessing a demand
from the corporate travellers and domestic
tourists but the duration of their stay has
reduced. The ARR in these hotels ranged
between Rs.2,100-3,000 in FY 2007-08, with
hotels in Panjim city recording the highest
values. Currently the ARR has dropped by
around 5.5% across the budget hotels.
Around 450 rooms are expected to be addedto this category by end-2012.
While Goa continues to be a preferred
destination among global travellers, many
newer destinations like Malaysia and
Singapore are offering attractive holiday
packages as well. Besides this, Goa had
already witnessed a slowdown in September
2008 due to the global crisis and reported
untoward incidents arousing safety concernsamong foreign tourists. While the hotel
industry was waiting see whether the markets
would pick up in Nov-Dec, the recent attacks
on Mumbai have only led to a further slump in
the market, especially among the premium
category segment. However, some hoteliers
are still optimistic that new year parties in
Goa will attract a larger number of domestic
tourists due to the packages offered.
To attract the global market, various other
avenues need to be explored in addition toimproving the infrastructure facilities of the
southern part of the state. Given the fact that
Goa has world heritage architecture and rich
flora-fauna, as well as potential for eco and
medical tourism, it could be promoted to not
only the foreign market, but the domestic
segment as well.
While many of the upcoming hotels may
benefit by business brought in by the 2010
common wealth games, sustainability would
be a primary concern in the long run. Manydevelopers are already reconsidering plans of
hotel projects, due to the current crisis and
slowdown across the market.
Outlook
Minimum Maximum
0
20,000
10,000
5,000
Source: Knight Frank Research
Figure 19
Category-wise ARR
15,000
Rs.
5-star
Delux
e
5-star
4-star
Budget
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BEngalUrU
Overview
Bengaluru, the intellectual capital of India
with its diversified culture and cosmopolitan
populace continues to be in the focus of
international investors, developers, retail
brands and educational institutions. A
significant event in 2008 was the opening of
the Bengaluru International Airport which isprojected to enhance the global position of
the city in terms of foreign investments, wider
opportunities and foreign tourist inflow.
now been delayed due to the high land costs
and construction costs. Hoteliers and
developers have acquired huge land parcels
on the Bellary Road in proximity to the new
International Airport, as a result of which this
region has a number of projects in the
pipeline.
The city has currently 2,212 rooms in the
5-star Deluxe and 5-star categories. Currently,
the premium category hotels have ARR in the
range of Rs.10,000 to Rs.18,000.However, the
average occupancy over the year is 67%
which reflects a dip of around 8% compared
to last year.
Among the existing hotels, Leela Palace
increased its room inventory to 352 rooms,
while the Park and Royal Orchid have been
upgraded to the 5-star category. The city will
have an additional supply of 3,359 rooms in
the premium category by 2010. Imminent
international brands under construction in
the city centre include the Shangri-La,
Ritz Carlton, Marriott and Hilton scheduled to
be operational by 2009-10. Among the
domestic brands, ITC Group is coming up with
the ITC Gardenia at Lavelle Road with Prestige
developers.
In the peripheral locations of the city,
international brands include the Shangri-La
at the Sarjapur Outer Ring Road and the
Radisson at Whitefield in the 5-star category
which would be due for operation in the next
year.
5-star Deluxe and 5-star Hotels
Source: Knight Frank Research
Figure 21
Occupancy Rate (5D,5,4-star Hotels)
0
100
60
40
2004
2005
2006
2007
Q3
2008
20
Percent(%)
80
2003
The Lalit Ashok, Bengaluru
Most of the prominent developers in the city
like Brigade, Adarsh, Sobha, Nitesh and
Prestige have entered the hotel market
through joint ventures with domestic and
international brands to develop hotels in the
premium and business categories. The city is
experiencing an influx of international brands
like Hilton, Shangri-La, Marriott, Ritz Carlton
and West Inn to name a few. Most of the
upcoming hotels are part of the integrated
townships as it minimises the risk involved in
the project. Another notable segment in the
hospitality sector is the serviced apartments
sector, which has been coming up across all
quadrants in the city.
The State Government is taking initiatives to
improve the infrastructure and promote the
city as a hub to tourist destinations. Until
now, the hotels were primarily concentrated
in the city centre and its surroundings.
However, the upcoming hotels are
concentrically spread towards the peripheral
locations of the city. Locations like
Whitefield, Bellary Road and Hosur Road have
huge hotel developments in the premium
segment which would be operational in the
next two years.
The city has a total inventory of 3,823 rooms
across all hotel categories. The city is
expected to have a total supply of 5,800
rooms in the next three years. Many hotel
projects which had been announced in the
last one year by prominent hotel groups have
Current Scenario
0
16,000
10,000
Source: Knight Frank Research
Figure 20
Movement in ARR (5D,5,4-star Hotels)
2004
4,000
2005
2006
2007
Q3
2008
Rs
.
2003
14,000
12,000
8,000
6,000
2,000
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4-star Hotels
Budget Hotels
Bengaluru, being a predominant business
destination witnessed an increase in the
number of 4-star hotels in 2008.This segment
has an existing room inventory of 1,611 which
includes the five new hotels opened this year.
The 4-star hotels in the city registered an ARR
in the range of Rs.5,400-7,500 with an
average occupancy of 70% over the year. The
cost cutting in the IT/ITES companies has had
a severe impact on the business travellers tothe city. Increase in flight costs and reduction
in the number of domestic flights has also
decreased the flow of domestic travellers to
the city.
Some of the prominent new hotels
operational in 2008 include the Taj Vivanta at
Whitefield Fortune, JP Cosmos at Cunningham
Road and The Royal Orchid's, Ramada near
Shivaji Nagar. In the east, the Savannah
Sarovar Premiere and the Fortune Select
Trinity started their operations at Whitefield.These hotels added 626 rooms in 2008 in the
business category.
Major international brands foraying into this
segment are the West Inn at Hebbal,
Shangri-La Traders hotel at Whitefield and
the Renaissance at Bannerghatta Road.
Domestic players in hospitality industry are
also expanding their presence in the city
which includes the Trident at the
International Airport, the Taj Group coming up
with a hotel at Yeswanthpur and Lemon Treeat St. Johns Road. There would be a total
supply of 1,587 rooms in the next three years.
The decrease in flow of domestic tourists to
city has had a significant impact on this
sector as well. Most budget category hotels in
the city centre recorded an average
occupancy of 60%. This is primarily due to
the presence of serviced apartments in the
vicinity, which offer competitive rates for long
stay durations. At present, these hotels have
an ARR of Rs.2,800. Hotels operational in the
last year include the Confident's Iris at
Brigade Road and the Radha Hometel at
Whitefield.
Global recession has reduced the number of
foreign tourists visiting the city. The after-
effects of the terror attacks at Mumbai led to
a further slowdown in the hospitality sector.
Occupancy rates have decreased further by
15-25% towards the end of 2008, while hotels
across the city have reduced the tariff rates
by 35-50%. Most of the hotels have decided
to defer their Christmas and New Year
celebrations this year. On the other hand, The
F&B segment in the hotels have faced adecline due to increase in the number of
stand-alone restaurants across the city. The
Aero Show scheduled in February is expected
to boost the occupancy in these hotels.
However, the city may not witness an
increase in the ARR levels and the occupancy
levels in comparison to the last two years.
Further, existing hotels are bound to face a
competition in the next two years due to the
upcoming supply in the market.
The city skyline is projected to change in thenext three years with the entry of
international brands, mixed use
Outlook
developments and serviced apartments
across all the micro-markets in the city. The
booming healthcare sector is likely to
promote medical tourism while heritage
tourism would also enhance the growth of thecity as a transit hub. The state has already
two world heritage sites and few more
heritage sites are expected to be added in the
near future.
Fortune JP Cosmos, BengaluruMinimum Maximum
0
20,000
15,000
10,000
5,000
Source: Knight Frank Research
Figure 22
Category-wise ARR
Rs.
5-star
Deluxe
5-star
4-star
Budget
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hyderabad
0
12,000
10,000
8,000
6,000
4,000
Source: Knight Frank Research
Figure 23
Movement in ARR (5D,5,4-star Hotels)
2004
2,000
2005
2006
2007
Q3
2008
Rs.
Source: Knight Frank Research
Figure 24
Occupancy Rate (5D,5,4-star Hotels)
0
90
70
60
50
40
2004
30
2005
2006
2007
Q3
2008
20
10
Percent(%)
80
Taj Krishna, Hyderabad
Overview
Hyderabad, the capital city of Andhra
Pradesh, popularly known as 'The City of
Pearls' is one of the fastest growing
metropolitan cities in the country with a
growth rate of 32%. It is the 5th largest city in
India with its urban agglomeration
comprising the three cities of Hyderabad,
Secunderabad and Cyberabad. Recently, the
Government of Andhra Pradesh formed the
Hyderabad Metropolitan Development
Authority (HMDA) which encompasses an
area of over 6,300 sq. kms with a population
of 6 million. With this move, Hyderabad has
become equivalent size-wise to the other
important metropolitan cities in the country.
The city's growth has also led to the
resurgence of the hotel industry. The
expansion of the IT/ITES sector, launching of
the new international airport at Shamshabad
and various other infrastructure initiatives bythe government have resulted in an increased
inflow of both tourism and business travel to
the city. Apart from the IT/ITES sector, other
major sectors like biotechnology,
pharmaceutical and medical tourism have
also contributed to a strong growth in the
hospitality sector. In a significant step, Accor
opened the largest convention centre in the
city in 2006, which propelled Hyderabad's
status to that of a preferred destination for
meetings and conventions. Since then, there
has been an annual increase of 12-14%
observed in foreign and domestic corporate
travelers to the city.
The current global economic situation and
hike in the fuel surcharges creating an
adverse impact on the IT sector, led to a
decline in travel plans as well as major cost
cutting by the companies. Besides these
challenges, the infusion of an additional 500
rooms this year further increased pressure on
Current Scenario
the occupancy levels and ARRs among all
categories of hotels. However, the premium
hotels in the city have managed to maintain a
steady occupancy level with a number of
conferencing and sporting events this year,
notable amongst them being the PATA
Conference, ICL and the India Aviation Meet
which took place recently.
Coupled with strong commercial/ retail base,
high-end residential catchment and proximity
to the old international airport, locations like
Secunderabad, Begumpet, Somajiguda and
Banjara Hills witnessed a high concentration
of the hospitality sector catering to the
demand. There are a total of about 37 hotels
in the city with an inventory of 3,949 rooms of
which there are eight hotels in the 5-star and
5-star Deluxe category contributing to 39% of
the existing total inventory. These hotels
cater to about 70% of the total business
travelers to the city. Majority of the 5-starhotels are located in the CBD and Off-CBD
locations. The ITC Kakatiya and Fortune
Manohar are located at Begumpet while the
Taj Krishna, Taj Banjara and Taj Residency are
located at Banjara Hills. Other premium
hotels include the Hyderabad Marriott
located at Tank Bund Road and the Novotel
Hotel at Hitec-City.
A number of hoteliers have leveraged the
advantages involved with the shift from the
existing CBD to the new CBD (Madhapur andGachibowi), as well as the development of
5-star Deluxe and 5-star Hotels
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Minimum Maximum
0
12,000
8,000
6,000
4,000
2,000
Source: Knight Frank Research
Figure 25
Category-wise ARR
10,000
Rs.
5-star
Deluxe
5-star
4-star
Budget
Outer Ring Road, which would result in
increased connectivity to the airport. The
latest entrants to the hotel market this year in
the premium segment have been Ista and Ella
Compass Suites, besides the Airport Hotel
launched by the Accor Group which is also
the first transit hotel near the Shamshabad
International Airport.
Out of the upcoming total supply of 8,142
room keys across all categories, the premium
segment would contribute a major share of70%. Most of these developments are spread
across the new CBD and the peripheral
regions of Kukatpally, Shamirpet and Uppal.
These locations will add a supply of 3,572
keys in 13 hotels. The prominent hotels in the
pipeline include Westin, Hilton Garden Inn
and Aditya Sarovar Premier. Another notable
hotel project is being developed by the
Dubai-based Emaar Group. Also, the old CBD
had Taj coming up in Begumpet, Fairmont at
Ameerpet, Marriott Courtyard at Tank Bund,
the Park Hotel at Somajiguda and three other
hotels with a supply of 1,385 keys. Taj is also
launching a heritage hotel called Taj
Falaknuma at Old city which has connectivity
to the new international airport and targets
the high-end tourist populace to experience
the Nizam royalty. The Off-CBD at Banjara
Hills will add to 22% of the supply with the
presence of hotel chains like Hyatt, Leela and
Hilton.
The vibrant growth in the economy during FY
2005-07 resulted in substantial growth in the
hotel sector, which witnessed a growth rate
of 16% in occupancy levels, thereby leading
to 35% escalation in the room tariffs. Owing
to the demand-supply mismatch, the existing
hotels enjoyed occupancy rates and high as
82-85% and an ARR of Rs.8,102 in the
premium segment. However, additional
supply infusion of 500 rooms this year,
coupled with the slowdown in the market and
increasing inflation, have resulted in
occupancy rates to decline to about 65%,
while the ARRs have come down to Rs.6,674.
4-star Hotels
Budget Hotels
There are about four 4-star hotels, including
the Green Park and Katriya Towers,
concentrated in the old CBD. The existing
inventory of the 4-star hotels is around 503
rooms contributing to 15% of the current
stock. The ARR in this category was in the
range of Rs.4,000-4,500 in the year 2007.
Owing to the market slowdown, there has
been a 5% decrease in the ARR this year,
compared to last year's values, which ranges
from Rs.3,800-4,250. The occupancy rates
have also shown a 5% decrease since the last
year and currently stand at 77%. The
upcoming supply in the 40-star category
contributes to around 814 room keys,
scheduled to be operational by 2012. The
prominent hotels in the pipeline in this
category include The Park at Somajiguda and
few other projects by independent players
like VA Hotels Pvt. Ltd at Banjara Hills.
There are several hotels in the budget
category which are concentrated in the old
CBD of Secunderabad, Begumpet and
Lakdikapul in proximity to the railway station
and major bus stations. With the commercial
base still intact in the old CBD, the budget
hotels cater to 75% of the business clientele
and pharmaceutical companies which are the
major feeders to this segment. The existing
inventory of the budget hotels is 1,905 keys,
contributing towards about 48% of the total
room inventory in the city. Compared to the 5-
star and 4-star hotels, the budget hotels
managed to maintain a steady ARR of
Rs.3,800 during the current year. How
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