Hotel chains on signing spree of management contracts for 2024

Many hotels are looking to largely brand hotels that are new developments or greenfield projects for their upcoming pipeline.
Many hotels are looking to largely brand hotels that are new developments or greenfield projects for their upcoming pipeline.

Summary

  • The significant growth the sector has witnessed post the pandemic is driving the expansion in most major hospitality companies

New Delhi: More than 100 hotel contracts are either in the process of being signed or have already been signed for calendar year 2024 as hotel management firms amp up their development pipelines. On the back of strong growth in the hospitality industry, hotel companies said they are looking to rapidly expand their hotel management arms with medium and large inventory hotels, by at least 20-30% over what they did in 2023.

The significant growth the sector has witnessed post the pandemic is driving the expansion in most major hospitality companies. Most like Oberoi Hotels, The Lalit, Radisson Hotel Group, Lemon Tree Hotels, Wyndham Hotels & Resorts as well as Accor, and others like Fortune Hotels have strong pipelines for 2024.

Given rising disposable incomes, increasing domestic tourism, and a growing demand for branded hotel experiences, the companies are targeting established tourist destinations like Goa and Rajasthan, as well as emerging markets in tier-II and tier-III cities.

Instead of owning hotels themselves, hotel companies for some years now have turned to becoming more "asset light", where they manage other hotel owners' properties for a fee. This fee typically is 6-10% of a hotel's annual revenue. For example, a hotel generating 300 crore in a year would pay 18-30 crore to an operator for management services. These partnerships are often long-term, with most hotels signing contracts lasting 12-15 years.

Many hotels are looking to largely brand hotels that are new developments or greenfield projects for their upcoming pipeline as opposed to brand conversions projects, which would account for just 20-30% of the pipeline. For example, nearly two thirds of Lemon Tree's upcoming pipeline of 30 hotels, with over 2,000 rooms, is either new constructions or brownfield projects. The remaining are conversions.

Nikhil Sharma, market managing director for Eurasia for Wyndham Hotels & Resorts said the company in 2023 signed agreements with 17 hotels and inaugurated six of them. Another 13 are to follow this year. Radisson Hotel Group signed 21 hotels in 2023, too, and has signed 10 new properties over the year, targeting strategic expansion in tier-II and tier-III cities, said the company in a statement.

The Lalit has assigned a third-party company to help it grow management contracts. Its focus will be to open smaller, mid-segment hotels with smaller inventories, called The Lalit Traveller, said Jyotsna Suri, chairperson and MD of Bharat Hotels Ltd which runs The Lalit brand. As for hotels owned by the company, it has a hotel nearing completion near the Sabarmati river in Ahmedabad and has also identified a location in Chitrakoot in Madhya Pradesh.

"We will look at growth not just for the sake of growth; we will grow with management contracts and with our own hotels," Vikramjit Singh Oberoi, managing director and CEO of EIH Limited, said at a recently concluded event by the Hotel Association of India. “We will invest in hotels and will partner with others to grow both our brands, Oberoi and Trident. Our vision is to open 50 new hotels—big and small—across the country and overseas by 2030."

EIH's upcoming developments have a mix of owned and managed hotels, including a palace outside Khajuraho, Rajgir Palace in Madhya Pradesh, and a jungle resort in the same state. It has a site in Bengaluru and Goa. It also has management contracts with and without equity in other locations.

Ajay K. Bakaya, MD of Sarovar Hotels and director, Louvre Hotels India, said: "We surpassed our projected openings by launching 10 hotels across eight cities in 2023 and added about 650 keys to our portfolio of 7,500 keys. We are confident of opening 15 hotels and are already working towards achieving this target."

Delhi-based Naaz Hotel Consultants, a hospitality consultancy firm, facilitated about eight management contract deals last year. This year, this number could go as high as 14-15, including in areas such as Jewar in Greater Noida, Ayodhya, Kukas and others, according to Ishaan Koul, the company's director.

"The domestic tourism industry has grown exponentially and hotel project feasibility studies have gone up too, demonstrating that more hotel owners want their hotels to be professionally managed. They have realised the value of a hotel brand. We are bullish about the sector's growth," Koul said.

The specific reasons for expansion vary depending on the company. Wyndham Hotels & Resorts is focusing on established markets with strong growth potential, while Radisson Hotel Group is targeting strategic expansion in underserved cities and pilgrim destinations. Lemon Tree Hotels, on the other hand, is focusing on expanding its budget and mid-scale brands in tier-II and tier-III cities.

 

 

 

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