New Delhi: Hotel investment firm Jones Lang LaSalle Hotels (JLL Hotels) set up a dedicated India team this year, hiring Sudeep Jain from Starwood Hotels and Resorts Worldwide Inc. as executive vice-president and country head. JLL Hotels advised on 259 hotel transactions globally last year with a combined value of $13.9 billion (Rs63,106 crore). On a visit to India, Arthur de Haast, global chief executive officer of JLL Hotels, in an interview spoke about a global slowdown in the hotel business and India’s future prospects. Edited excerpts:
How has the economic slowdown affected the hotel business?
There is clearly a slowdown in the global markets, and it is affecting different markets at a different pace. In markets like the US, there is definitely a slowdown in the demand for hotel accommodation, but that is not universal. The continent of Europe is moving at different speeds and markets like Spain are in quite a lot of trouble whereas in central and eastern Europe, the economies are still growing and the demand there is holding up better. Russia is still very strong and has some of the highest RevPARs (revenue per available room, a combination of occupancy and average room rates) in the world. Asia is generally holding up better. Economic growth is slowing a little bit, which is beginning to impact the performance of some hotels, but it is not as significant as we are seeing in Europe and North America.
India visit: Jones Lang LaSalle Hotels global CEO Arthur de Haast. Ramesh Pathania / Mint
How do you quantify this slowdown globally?
If you look at what has been happening in the global hotel investment market, this year, till the end of June, the total volume of transactions is $13.9 billion worldwide, which is 76% down on what was transacted in the first half of 2007. So, we have seen a very significant slowdown in the level of investments, and?a?large?part of that is driven by the US market which is down by 81%. Within the Asia-Pacific region, Japan, which was a very active investment market in 2006-07, has been the market with the most significant slowdown in 2008.
Here, there is virtually no investment activity, and I am talking about existing hotels where the ownership is transferred from one investor to another. Here, the existing hotels are very tightly held by three major companies—Taj, Oberoi and ITC—and they are not inclined to sell out their real estate. The investment volumes in India are relatively small.
How is India positioned in this context?
In India, if you look at it medium to long term, the fundamentals are very promising. In a global context, given the size of the economy, the population and the future potential of India as a tourist destination, the demand fundamentals are very good. The current supply of hotel rooms in India—at around 100,000—is less than London and even Manhattan. The continuing growth in the economy and the continuing promotion of India as a tourist destination is increasing its importance for international conferences and business meetings. The long-term demand will be good. However, India needs a lot more hotels in order to service that future demand. There is a lot of supply being talked about, there is also quite a lot under construction, and there are clear trends that what has been talked about and what is being built in the short term are two different things. Even in those projects that looked pretty solid and likely to happen 12 months ago, we are beginning to see some slippage.
Any reasons for this slippage?
Projects are slowing down for two reasons. One is it is becoming more difficult to raise debt finance for projects... The other factor is that they are also beginning to sense that there may be some slowdown on the demand side and, therefore, they are becoming a little bit more nervous about whether they are going to meet their target returns. And in some cases they are reviewing their project to see whether it is going to make sense at all.
What is the short-term impact (six months to a year) of the slowdown in India?
We are clearly seeing a slowdown, not so much in domestic demand as at the international level. Major financial institutions that would have held a global conference here in New Delhi or Mumbai are likely to review that and probably cancel it. International companies that have global conferences and trade shows are very carefully looking at this and it is starting to impact the demand side. This will result in a slowdown in demand.
How is India perceived as an investment region by international hotel brands around the word?
I don’t think there has been any reduction in appetite from the big global brands. The long-term fundamentals of India are very strong, and there are companies that have very long-term strategies for India. The Accors, the IHGs (InterContinental Hotels Groups) and the Starwoods of this world will continue to seek to increase their penetration in the market here and increase the number of hotels they have under management.