Bangalore: Tariffs and occupancy rates at hotels in Bangalore have declined in the six months to October compared with a year ago, because people have been put off by the high rates. Two consulting firms said that this could mean that the city may not add as many new hotel rooms in the next three to five years as originally planned.
According to Boutique Hospitality Consulting, a Bangalore-based firm focused on the hotel industry, hotels in the city have seen their average room rates, or ARRs, drop by 10-12% in the six months to October. Occupancy rates have also slipped in this period—from a high of 80-85% last year to 68-70%.
Hotel Leela Palace in Bangalore
The consulting firm said that “abnormally high” rates had resulted in a fall in occupancy rates. And that, in turn, had forced hotels to prune their tariffs. “Hotels will have to choose between occupancy and ARR. They cannot have both,” said Taposh Chakraborty, CEO, Boutique Hospitality Consulting.
Bangalore has nearly 2,400 rooms in the luxury segment and almost 13,000 new rooms will be added to this number over the next five years. The average room rate at a luxury hotel was Rs12,050 a night in 2006-07, according to the Indian arm of HVS International, a global hospitality consultancy firm. Those tariffs had hit a peak and are now on their way down, according to HVS. “Clearly, the turn-around has started,” said Manav Thadani, managing director of the Indian operations of HVS International.
As a result, HVS said, only 61% or 7,800 of the 13,000 new rooms that were to be added will actually get added. Boutique said that around 3,100 new hotel rooms will be added in Bangalore in the next three years. The new additions could cause a further dip in rates, predicted Chakraborty. “When supply increases, there is price rationalization,” he added. The firm said average occupancy rates could fall to 60-62% and rates at five-star hotels to Rs9,000-9,500 a night over the next five years.
Not everyone buys these arguments. Chander Baljee, chairman and managing director, Royal Orchid Hotels Ltd, which operates a five-star hotel in the city, said that while room rates are “subdued”, demand continues to rise “because of more business travellers (visiting the city)”.
That could explain why hospitality firms are aggressively ramping up capacity. Taj Hotels, the brand owned by Indian Hotels Co. Ltd, a Tata group company, is building five new hotels in the city, including a luxury property near the new international airport at Devanahalli.
“The five-star and five-star deluxe (category) will continue to grow. But there will be rationalization (in tariffs) in the business hotel segment,” said P.K. Mohan Kumar, area director (Bangalore), Indian Hotels.
New luxury hotels coming up in Bangalore include those being developed by Shangri-La Hotels and Resorts, Marriott International Inc., Hilton Hotels Corp., and Carlson Hotels, which owns brands such as Radisson and Country Inns & Suites.