Hoteliers see room rates growing to highest level in a decade
Mumbai: As demand for hotel rooms outpaces supply, pan-India average room rates (ARR) are likely to see an improvement of 8-9% this year, the strongest growth in the last one decade, hotel companies said.
According to hotel consultant firm Hotelivate, hotel room occupancy across the country has recorded a nine-year high in the financial year ending March 2018, touching over 67%. Several hoteliers believe said this strong occupancy level is expected to push average room rates significantly this year.
After the global financial crisis in 2008, average room rates across major cities in India suffered due to excess supply. However, room rates started recovering seeing a consistent growth of around 2-3% on a pan India level in the last three years backed by a strong demand.
According to Achin Khanna, managing partner (strategic advisor), Hotelivate, room rates will see the strongest growth this year as compared to the last 10 years though it would take another 4-5 years to touch its peak ARR level of Rs7,500 recorded before 2008. In the financial year 2017-18, ARR across 130,000 hotel rooms in the country stood at Rs5,841, as per data compiled by Hotelivate.
“ARR will increase at a higher percentage growth than what we have seen in the last one decade. We expect a growth of around 8-9% in 2018-19,” Khanna said. The growth will further escalate as demand continues to grow between 10-14% while supply sees a yearly increment of around 5-6%, he added.
According to Puneet Chhatwal, managing director (MD) and chief executive officer, Indian Hotels Co. Ltd (IHCL), Indian hotel firms have been reluctant on increasing the room rates despite robust demand and strong growth in occupancy levels.
“Hotel leaders in India have one obligation and that is to increase and optimise the room rates. We are champions in getting occupancy... but we have been very hesitant on moving up the rates,” Chhatwal said at the Hotel Investment Conference - South Asia (HICSA) 2018 in Mumbai last week.
There is a big opportunity to increase room rates as all fundamentals are positive including high disposal incomes, rising employment, more upcoming infrastructure and more people travelling, he added.
Ashish Jakhanwala, MD and CEO of hotel investment firm SAMHI, agreed that the consistent growth in occupancy level for the last three years, is a great indicator for “an impending room rate growth”.
“Historically, markets start correcting rate when it touches above 68%. The industry has crossed that inflection point where it wasn’t confident about re-pricing. Now the volumes are giving us the confidence to reprice,” he said.
Senior executives of hospitality chain Radisson Hotel Group and hotel developer Chalet Hotels Ltd, part of real estate firm K Raheja group also expect a strong single digit growth of around 8-9% this year.
“Hotel room rates suffered for the longest because there was excess supply in the market. Now, with demand growing fast, those excess supply is getting absorbed. The supply and demand equilibrium is being restored,” said Raj Rana, CEO (south Asia), Radisson Hotel Group.
Sanjay Sethi, MD and CEO, Chalet Hotels said that the high occupancy has offered an opportunity to increase room rates. “Some of our hotels will see growth of around 8-10%. Last year, our hotels room rates has been trading at 5% on an average. Our occupancy is high. When the demand is so high, there is opportunity to increase the rates,” he said.