Supply deluge = hotel room rates look capped

More than 15,600 new hotel rooms are set to be added to the hospitality market in 2010, according to an estimate by leading consulting firm Deloitte Touche Tohmatsu.

The supply, spread over 92 hotels, is about 15% of the total hotel inventory of approximately 100,000 rooms in India.

Ashish Jagnani and Vidhi Sodhani, analysts with Citigroup, see the development depressing average room rates.

“Although we see occupancy levels improving further, given the pressure on tariffs due to new supply, we believe upside on revenue per available room (RevPAR) is limited,” the duo said in a note.

RevPAR is total room revenues divided by total room inventory of a hotel — irrespective of the number of rooms occupied. It shows how much the whole asset is earning.

Visheshwar Raj Singh, general manager of the newly launched Trident, Bandra Kurla (Mumbai), concurs. “A large part of the additional demand in 2010-11 will be absorbed by the new inventory expected to enter the market. In summer, particularly, rates will be under pressure as hoteliers try to maximise volumes,” he said.

Jagnani and Sodhani said average occupancy across 11 key cities was up a healthy 68% as of January 2010 (vs 65% in the third quarter ended December 2009 and 58% in January 2009).

However, the number is still far below the peak of 79% seen in January 2008. “We expect this to improve to 72-73% in the new fiscal with business and tourist traffic picking up...,” they said.
Naresh Chandnani, vice-president - sales, IHHR Hospitality (which owns the Ista chain and Ananda in the Himalayas spa said there certainly is an increase in the number of rooms in every city, leading to price correction.

“Supply has already gone up by 30-40% in some cities and we must be prepared to deal with the fact that prices won’t be what they were two years ago. Supply has outstripped demand and price rationalisation has happened, which is keeping a check on room rates,” said.

And while some positive signs of a possible revival have shown up in terms of tourist arrival numbers in the recent past, the Indian hospitality fraternity is sceptical that the numbers will be sustained in the first two quarters of financial year 2010.

“Come April 2010, excluding some leisure destinations in the north Indian states, most of the business travel markets across the country will enter the low-business season.

“Any revival in hospitality business can only be validated if we are able to maintain the same level of growth,” said a senior management official from a big hospitality chain in the country.
According to Deloitte data, India has close to 415 projects or 68,480 rooms in various stages of development and 41% of these projects are expected to start adding to the existing inventory from 2010; though it could take a while for the supply to catch up. Major hotel chains such as the Taj Group, Oberoi Group, Hotel Leelaventure, ITC Hotels, Starwood and Marriott International are set to add over 3,000 rooms between them. The balance would be by Hyatt, Accor, Intercontinental Hotel Group and a few foreign budget chains. Of the total upcoming room pipeline, 45% is located in the top 5 cities —- Bangalore, Pune, Mumbai, Chennai and New Delhi. New Delhi alone has over 6,000 rooms under construction.