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Hospitality sector sees addition of rooms bringing tariffs down

Hospitality sector sees addition of rooms bringing tariffs down

New Delhi: What goes up can’t keep going up is the prediction of experts on India’s hotel tariffs, which have been growing at an average of 25-30% annually for the past several years.

Thanks to an emerging supply of new hotel rooms, rates are expected to start correcting over the next two to three years. “Over the next few years, most of these cities (Mumbai and Delhi) will have sufficient supply coming into the market across most of the categories and this is likely to lead to a correction," says Akshay Kulkarni, director, South Asia, Cushman and Wakefield Hospitality, an international property consultancy firm.

Room rates in Mumbai and Delhi rose nearly 40% in 2007, a much higher jump than the global average growth in room rates at 15%. Over the last four years, room rates in India have been growing at an average of 30% in smaller cities such as Bangalore, Chennai and Hyderabad. Over a 10-year period, rates have moved up at about 9% in these cities, according to Kulkarni.

“In most markets, new inventory is expected to come up and this will increase the supply of hotel rooms," says Mandeep Lamba, managing director of Dawnay, Day Hotels India Pvt. Ltd. “I do feel prices should correct when new supply comes in." The correction would depend on various categories of hotels and locations but, it could be as much as 20%, he says.

That’s because both domestic and international hotel chains are expanding their operations in India.

Global hotel brands, such as Shangri-La Hotels and Resorts, Four Seasons Hotels and Resorts and Marriott International and Hilton Hotels have all announced major expansion plans, often partnering with Indian companies. Hilton Hotels has a joint venture with developer DLF Ltd to develop 50-70 business hotels and serviced apartments throughout India by 2012. Four Seasons also has partnered with DLF to operate a luxury hotel in Gurgaon, a suburb of Delhi.

The entry of moderately priced hotels into the market will also force hoteliers to cut room rates, says Aradhana Lal, vice-president, sales and marketing, Lemon Tree Hotels.

“Because of the shortage in hotel rooms, hoteliers were pricing rooms at any price point," he says. “But, with the entry of hotels such as Sarovar Hotels and Resorts, Accor Hotels and Ibis Hotel, people have an option. It will force five-star hotels to relook pricing and make it more realistic," he added.

Thanks to the tourism boom and the shortage of rooms in the country, hoteliers have been charging high room rates. According to the tourism ministry, 4.4 million tourists visited India in 2006 and this number is expected to go up to 10 million in 2010.

The Indian hotel industry has 110,000 rooms but there is believed to be a shortfall of 150,000 rooms, which has largely been responsible for the high room rates. The average room rate of a five-star hotel in a commercial hub such as Gurgaon near Delhi is between Rs13,000 and Rs15,000 per night, according to Lal. In Pune, it is Rs10,000-11,000, while Bangalore has some of the most expensive hotels. Average room rates in Bangalore are between Rs15,000 and Rs17,000 per night. That compares with an average room rate of $250-300 (Rs10,000- 12,000) in New York.

Meanwhile, the growth in room rates is already softening, said, Chender Baljee, chairman and managing director, Royal Orchid Hotels.

“In Bangalore, room rates have come down by some extent. There is a limit to how much room rates can go up and, when new capacity comes in...growth in room rates will go down," Baljee said.

“We have four hotels in Bangalore, out of which two are seeing substantial growth in room rates and the other two hotels are seeing 10-15% growth," he added.

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