Home / Companies / News /  Tier-III cities show strongest recovery in hotel business

NEW DELHI : Tier-III cities with resort locations in India have seen the strongest recovery amid a rebound in leisure tourism. This has allowed these locations to command average rates higher than what they originally achieved prior to the pandemic, a new report by hospitality consulting firm Hotelivate said.

The company’s 2022 Indian Hospitality Trends and Opportunities report said the resurgence of hotel demand in the June quarter has been exceptional, and the companies have exceeded their pre-pandemic performance. India has about 150,000 branded hotel rooms, and the months of July and August have clocked some of the best performances hotel businesses have seen across several markets, said the report. The survey was done on 1,364 hotels, 53 companies and 152,000 rooms across 238 cities and 174 brands. It added that business is robust across markets, especially with leisure locations continuing to outperform urban markets; city hotels have also seen an upswing in demand. The return of international travel will help further benefit the industry in the months ahead.

The average room rates have shown marginal growth from 2020-21 due to the price sensitivity of the Indian consumer. Despite seeing the strongest growth in revenue per available room, average rates of five-star hotels in India are still below their peak year of 2007-08, when five-star hotels were selling at an average rate of 11,200 per night. In FY22, the rates were down to 8,890 from 10,679 per night in the pre-pandemic year of FY20.

India’s overall hotel occupancy across star categories touched as much as 71.5% in the peak years of 2005-06. This figure plummeted to as low as 34.5% in 2020-21 when the pandemic hit. The figure has now recovered to 50.3%. “In terms of nationwide occupancy, the industry has crossed the 50% mark with the national average room rate being just shy of 5,000 in 2021-22. We are willing to stick our necks out and forecast that FY23 will achieve 68% plus hotel occupancy (revised from our original estimate of 64.9%) and that nationwide average daily rates will be closer to 5,700," said Achin Khanna, managing partner, strategic advisory of Hotelivate, a hospitality consulting firm.

From an overall brand perspective, Indian Hotels Co. Ltd continues to be the number one. Despite having the largest inventory in the country, Marriott ranks second due to their larger rooms per hotel ratio compared to IHCL. Interestingly, Khanna said they could see that Indian-origin brands have a larger number of assets in the country when compared to their international counterparts. Mumbai topped India’s top 15 cities by the number of average rooms per hotel. It has about 224 rooms in each hotel, while Delhi has about 206.6 rooms per hotel. Hyderabad and Greater Noida hotels are next at 181.7 and 177.8 rooms, respectively.

India expects to add about 59,238 rooms between 2022 and 2027. Of that, 6.4% will be luxury developments, and 27.5% will be upscale hotels. The largest number of hotels in India will come up in Bengaluru at 20,824 rooms by 2027, followed by Goa at 11,054 rooms. Chennai will add 10,604 rooms by that year. Currently, Bengaluru has 14,022 rooms, Chennai has 9,763, and Goa has 8,244 rooms.

The report added that inflationary pressure, disruption of the supply chain and economic volatility have led to a rise in operational expenses for hotels. Additionally, high levels of inflation have led to an escalation of construction costs affecting hotel development too. Input costs for construction have risen by about 10% over the previous fiscal year and are expected to rise further during 2022-23.

ABOUT THE AUTHOR

Varuni Khosla

Varuni Khosla is a journalist with close to 14 years of experience in writing business news stories for mainstream newspaper companies like Mint and The Economic Times. She reports and writes on luxury and lifestyle brands, hospitality and tourism news, the business of sports, the business of advertising and marketing and alcohol brands.
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