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Hotels feel the pinch, forced to review plans for expansion

Hotels feel the pinch, forced to review plans for expansion

Pune: Slowing growth and declining business travel are forcing several large hotel chains such as Hotel Leela Venture Ltd to review their plans for Pune, which in recent years has emerged as a magnet for expansion in the hospitality sector.

At least Rs6,000 crore was supposed to be invested in the city from hotel groups that had announced some 30 properties to add 7,000 rooms over the next three-five years.

The rush to open hotels in the city, which had a shortage of 3,000 hotel rooms across categories, came on the back of some Rs6,000 crore plus of investment announced by auto makers such as Daimler AG and Volkswagen AG. In addition, Pune has also enjoyed a boom in the information technology sector which caused room rates to soar to Rs15,000 a night.

The global markets meltdown, which has dented international business travel, caused a widepsread credit crunch and put the brakes on India’s economic growth, also seems to have scuttled hotel building plans here, as they have elsewhere.

But Pune will feel the impact more because it has a much smaller base than larger cities such as Mumbai and Delhi, said Saurabh Gupta, associate director, HVS International, a hospitality services consultancy firm.

“Much of this has happened because real estate players entered the market without understanding the nature of this business, hoping to make a lot of money because of the huge shortage of rooms," he said. “They have no idea that the hotel industry does not give huge amount of cash inflows in the early stages. In fact, they call for a lot of cash infusion for interiors in the final stages. Now that funding has dried up, these players are putting their hotel ventures on hold and concentrating on finishing their residential and commercial properties which not only generate immediate cash but also attract penalties if not delivered on time."

The Leela group had acquired around 14 acres of land on the Pune airport road where it was to build a 225-room hotel-cum-urban resort at a cost of Rs180 crore. The project has been postponed “at the moment," said Rajeev Kaul, vice president at the firm, as also a proposed development in Hyderabad.

“We will complete our ongoing projects in Udaipur, Chennai and New Delhi and later see how the plans for these two cities go," Kaul said in a recent interview.

Marriott International Inc.’s 250-room JW Marriott property in Pune has been postponed for two years. “There is a slowdown in the sector and we are postponing the launch from 2010 to 2012," said Atul Chordia, chief executive of Panchshil Realty, which is building the property. Panchshil, however, is on schedule to build four other Marriott properties in the city, he said.

Chordia says the slowdown could be a blessing in disguise for the hotel industry. “By 2010 we would have had a major glut of hotel rooms in the city . All of us would be fighting for the pie and we would have to cut prices to remain in business. Now that there are delays and cancellations, the situation is not likely to be so drastic," he said.

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