BackMore than 100 hotel projects in limbo due to overcapacity woes
large number of these projects belong to international hotel chains, which had planned aggressive expansion in India
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Mumbai: More than 100 planned hotel projects in India are in limbo, some stuck for as long as five years, as the sector suffers from overcapacity in an economic slowdown, according to data from property consulting firm JLL India.
A large number of these projects belong to international hotel chains, which had planned aggressive expansion in India, only to face slow market growth and pressure on room rates, the JLL India data showed. Projects stalled include those under construction by these chains and also some where hoteliers had entered into management contracts with property owners.
“Hospitality industry is reeling under cyclical downturn in performance owing to the general slowdown of the economy both globally and in India over the last few years," said Mandeep Lamba, managing director, JLL India.
Lamba added that occupancies and average room rates have remained under pressure, leading to reduced profitability for most hotel chains.
High borrowing costs of 13-14% are also making it tough for some of these companies to complete projects, he added. Limited interest from private equity investors, due to lack of exit options, has also led to a paucity of funds for the sector, Lamba explained.
A number of stalled projects in the sector fall in the premium segment and belong to international hotel chains such as Starwood Hotels and Resorts Worldwide Inc., Hyatt Hotels Corp., Marriott International Inc. and AccorHotels, among others.
According to JLL India data, around 30 projects planned by Hyatt Hotels are on hold, while 18 Marriott projects have failed to take off. AccorHotels, which is present in India through brands like Ibis, Novotel and Mercure, has 17 stalled projects.
Starwood, which has introduced global brands Le Meridien, St. Regis and Four Points to India, has 5 projects stuck.
“Given the challenges of the real estate industry with exorbitant costs for land and capital, there are always bound to be a few projects that get stalled," said Sudeep Jain, vice-president of acquisitions and development (South Asia) with Starwood Hotels and Resorts.
Jain added that a few stalled projects will not impact his company’s business plans in the country. AccorHotels said all of its projects are active and didn’t “want to comment on specific projects". Email queries sent to Marriott and Hyatt remained unanswered.
The decision of many of these companies to go slow on projects comes in the backdrop of weak performance metrics in the hotel industry.
The pan-India average room rates (ARR) are estimated to have fallen by 2-3% in 2014-15, according to a 30 June report by Icra Research, the research wing of the domestic ratings agency.
While occupancies rose by a marginal 3%, this was due to weak supply addition of around 4%, shows the report.
P.R. Srinivas, director (hospitality), Cushman and Wakefield, a real estate consulting firm, acknowledged that a large number of hotel projects are stalled, but added that this is a “blessing in disguise" since the hospitality sector is already oversupplied.
Hotel occupancy in India has steadily declined from about 75% in the last decade to about 60% between 2011 and 2014, according to data provided by consultancy firm KPMG International Cooperative.
“Several projects are either lying half-constructed or just badly located. For property developers, building hotels is not the priority at the moment. Funding is a major problem for them now. So, single property owners, who stepped into hotel business during the boom, are the ones impacted the most," said Srinivas.
Among Indian firms, data show ITC Ltd has one project stuck in Tamil Nadu, although the company denied that any projects are on hold.
ITC said though there is short-term pressure due to the international and domestic slowdown, it will continue to invest in the business.
“Whilst many have shied away, our endeavour is to support India’s tourism growth and we have time and again demonstrated our intent to do so," said ITC Hotels in response to an email query.
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