As many as 36,000 new hotel rooms set to come up by 2013

An average Rs21 crore per day would be getting invested in the hospitality sector in the country over 1,095 days starting January, according to a back-of-the-envelope calculation by DNA.

Around Rs22,995 crore will go into creating an additional inventory of 35,977 rooms over the next three years, the calculation shows.

The investments include those by hotel chains and asset-owing companies (real estate developers) having tie-ups (management or franchise) with local and international hospitality companies.

The organised hospitality sector currently has around 110,000 rooms. The additions would take it to just a notch under 150,000 operational rooms.

The math is based on a recent report by international property consultant Knight Frank (India).

“Our study to map developments across 10 key cities shows that the upscale segment will see an addition of 24,211 rooms while it will be 8,709 rooms in the mid-scale and 3,057 rooms in the economy segment. For this study, we have only taken into account those deveelopments that will be ready to receive guests by 2013,” Samantak Das, national head - research, research & advisory services, Knight Frank (India) noted in the report.

The report, however, did not dwell on the investments going into creation of the additional rooms.

DNA used conservative per-key costs of development —- Rs75 lakh for upscale, Rs45 lakh for mid-scale and Rs30 lakh for economy segment hotels —- to arrive at the figures quoted above.

Shreenath Shastry, national director - hospitality & leisure, said the figures give a fair indication of the investments being planned. “In fact, our view is that the amount would be higher as the investment threshold being considered to arrive at the consolidated figure is very conservative. If you take into account premium and luxury category hotels, the per-key cost of development ranges between Rs1 crore and Rs1.25 crore. The other aspect to be taken note of here is the cost of land, which, in the Indian market, typically constitutes 40-50% of the overall development,” Shastry said.

The Knight Frank report said room demand will see a compounded annual growth rate (CAGR) of 10.3% over 2010-13.

However, the growth in supply during the same period would be far in excess of this, at 15%, it said.

But the room additions are expected to have a significant negative impact on the occupancy levels of hotels in most cities.

Among the 10 cities considered for the report, the National Capital Region (NCR) will comprise the largest share of demand and supply followed by Mumbai, Bangalore and Hyderabad. Pune, Jaipur, Chennai, Kolkata, Ahmedabad and Goa were the other cities considered.

“Except markets like Mumbai and Goa, occupancy level across other eight cities will witness a falling trend from 2010 to 2013. In fact, we believe Mumbai to be India’s most attractive hospitality market for the next three years, followed by Goa. Strong growth in demand, higher occupancy level, increasing ARRs (average room rents) and low incremental supply over the next three years are some of the reasons for the sector in both these markets to outperform other Indian cities going forward,” said Das.

Mumbai currently has 69 operational hotels and a total of 9,852 rooms across upscale (24), midscale (12) and economy (33) category hotels. Contributing 72% of the overall room inventory the upscale segment has 7,084 keys while the midscale segment has 911 rooms accounting to a meagre 9% of the total supply.

At 1,857 rooms, the share of economy segment rooms is 19%.
Mumbai is expected to witness fresh supply of around 2,843 rooms across upscale and midscale segments by end-2013. The new inventory will come up at a fairly consistent pace, with 23% set to enter the market by the end of 2010 and 2011, respectively, another 29% by end-2012 and the balance 25% by end-2013.

“The upscale segment will see approximately 1,983 rooms getting added by the end of 2013, thereby accounting for around 70% of the upcoming supply. The midscale segment will witness 860 rooms coming up by the end of 2013, representing 30% of the total new inventory in the city,” Das said.