Hotel Market Review Booklet 2008 Qtr 4

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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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Q4 2008

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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www.knightfrank.com

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


Figure 2

Movement in ARR (5D,5,4-star Hotels)

2004

2,000

2005

2006

2007

Q3

2008

Rs.


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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Q4 2008

INDIAHOTELReview

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


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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Q4 2008

INDIAHOTELReview

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


Figure 6


0

80

70

60

50

40

2004

30

2005

2006

2007 Q3

2008

20

10

Percent(%)


0

7,000

6,000

5,000

4,000

3,000

Figure 5


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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Q4 2008

INDIAHOTELReview

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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www.knightfrank.com


Figure 9


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.


0

8,000

7,000

6,000

5,000

4,000


Figure 8


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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Q4 2008

INDIAHOTELReview

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


Figure 10

Category-wise ARR

8,000

Rs.

5-star

Deluxe

5-star

4-star

Budget


11/28

www.knightfrank.com


Figure 12


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


Figure 11


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.


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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Q4 2008

INDIAHOTELReview

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


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.


13/28

www.knightfrank.com

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.


14/28

Q4 2008

INDIAHOTELReview

14


Figure 15


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.


0

9,000

6,000

5,000

4,000

3,000

Figure 14


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



15/28

www.knightfrank.com

15

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


Figure 16

Category-wise ARR

8,000

Rs.

5-star

Deluxe

5-star

4-star

Budget

St. Lauren, Pune


16/28

Q4 2008

INDIAHOTELReview

16

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.



0

7,000

6,000

5,000

4,000

3,000

Figure 17


2004

2,000

2005

2006

2007

Q3

2008

1,000

Rs.

2003


Figure 18


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


17/28

www.knightfrank.com

17

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


Figure 19

Category-wise ARR

15,000

Rs.

5-star

Delux

e

5-star

4-star

Budget


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Q4 2008

INDIAHOTELReview

18

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.



Figure 21


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


Figure 20


2004

4,000

2005

2006

2007

Q3

2008

Rs

.

2003

14,000

12,000

8,000

6,000

2,000


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www.knightfrank.com

19

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


Figure 22

Category-wise ARR

Rs.

5-star

Deluxe

5-star

4-star

Budget


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Q4 2008

INDIAHOTELReview

20

hyderabad

0

12,000

10,000

8,000

6,000

4,000


Figure 23


2004

2,000

2005

2006

2007

Q3

2008

Rs.


Figure 24


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



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www.knightfrank.com

21

Minimum Maximum

0

12,000

8,000

6,000

4,000

2,000


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

Documents

Hotel Market Review Booklet 2008 Qtr 4