Premium hotel inventory addition expected to lag demand over next 5 years: Report

Icra expects pan-India premium hotel occupancy to be 68-70% for FY23, while the average room rate (ARR) is expected to hover at 5,600- 5,800.

Varuni Khosla
Updated9 Nov 2022
Approximately 15,500 rooms will likely be added to the pan-India premium inventory of 94,800 rooms across 12 key cities over next 5 years. (File Photo)
Approximately 15,500 rooms will likely be added to the pan-India premium inventory of 94,800 rooms across 12 key cities over next 5 years. (File Photo)

NEW DELHI: India’s hotel room supply pipeline is expected to grow at a 5-year CAGR of 3.5-4%, adding approximately 15,500 rooms to the pan-India premium inventory of 94,800 rooms across 12 key cities, as per a report.This will facilitate an upcycle, as demand improves over the medium term while supply lags, with hoteliers adopting a cautious approach on expansion and the absence of any major announcements during the covid period. The current inventory growth is significantly lower than the 18% rise witnessed during FY2009-13, after the global financial crisis and notwithstanding the potential impact on demand with further Covid waves, credit rating agency Icra Ltd. expects the hospitality industry’s revenues and margins to return to pre-covid levels in the financial year FY23.

Demand recovery has been better than expected over the last few months, aided by domestic leisure, transient travel, pent-up demand from meetings, incentives and weddings segment, and gradual recovery in business travel and foreign tourist arrivals (FTAs). The second half of FY23 is expected to be better than the first half, with the sustenance of the leisure, transient, and Meetings, Incentives, Conventions and Exhibitions tourism segment (MICE) demand and a further pickup in business travel and FTAs, it said.

The agency said it expects pan-India premium hotel occupancy to be 68-70% for FY23, while the average room rate (ARR) is expected to hover at 5,600- 5,800.

Vinutaa S, vice president and sector head for corporate ratings at the agency, said, “The healthy demand uptick has resulted in a pick-up in new supply announcements over the last 4-5 months. Further, construction activity in projects stalled post-Covid-19 has also commenced recently.“

Occupancy in the year leading up to October stood at 62-64%, while the ARRs for the first seven months of FY23 was only at an 8-10% discount to pre-covid levels and stood at 5,000 to 5,200.

It said a few high-end hotels and leisure destinations witnessed ARR spike to higher than pre-Covid levels over the last 6-9 months. The improved operating leverage, along with the sustenance of cost-optimisation measures, will support margins and cash flows for hotel companies.

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