Tier III cities show strongest recovery in hospitality

NEW DELHI : Tier III cities with resorts in India have seen the strongest recovery amid a rebound in leisure tourism. This has allowed these locations to fetch higher average rates than they originally achieved before the pandemic, according to a new report from hospitality consultancy Hotelivate.

The company’s Indian Hospitality Trends and Opportunities 2022 report says the resurgence in hotel demand in the June quarter was exceptional and businesses outperformed their pre-pandemic performance. India has about 150,000 branded hotel rooms, and July and August saw some of the best performance hotel companies have seen in multiple markets, according to the report. The survey was carried out on 1,364 hotels, 53 companies and 152,000 rooms in 238 cities and 174 brands. He added that activity is robust in all markets, particularly with leisure venues continuing to outperform urban markets; city ​​halls have also seen an increase in demand. The return of international travel will help further benefit the industry in the months ahead.

Average room rates showed marginal growth from 2020-21 due to Indian consumer price sensitivity. Despite the stronger growth in revenue per available room, average five-star hotel rates 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, rates had fallen to 8,890 from 10,679 per night in the FY20 pre-pandemic year.

The overall hotel occupancy rate in India across all star categories reached 71.5% during the peak years of 2005-06. This figure dropped to 34.5% in 2020-2021 when the pandemic hit. The figure has now returned to 50.3%. “In terms of nationwide occupancy, the industry has crossed the 50% mark, with the national average room rate just below 5,000 in 2021-22. We are ready to reach out and expect FY23 to achieve 68% more hotel occupancy (revised from our original estimate of 64.9%) and national average daily rates to be higher close to 5,700,” said Achin Khanna, managing partner, strategic consulting at Hotelivate, a hospitality consultancy.

From a global brand perspective, Indian Hotels Co. Ltd continues to be number one. Despite having the largest inventory in the country, Marriott ranks second due to its ratio of larger rooms per hotel compared to IHCL. Interestingly, Khanna said they could see that Indian-origin brands have a higher number of assets in the country compared to their international counterparts. Mumbai tops the top 15 Indian cities in terms of average number of 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 with 181.7 and 177.8 rooms respectively.

India plans to add around 59,238 rooms between 2022 and 2027. Of these, 6.4% will be luxury developments and 27.5% will be high-end hotels. The largest number of hotels in India will arrive in Bangalore with 20,824 rooms by 2027, followed by Goa with 11,054 rooms. Chennai will add 10,604 rooms that year. Currently, Bengaluru has 14,022 rooms, Chennai has 9,763 and Goa has 8,244 rooms.

The report adds that inflationary pressure, supply chain disruption and economic volatility have led to an increase in hotel operating expenses. Additionally, high levels of inflation have led to escalating construction costs affecting hotel development as well. Construction input costs increased approximately 10% from the prior year and are expected to increase further in 2022-23.

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