Hotel industry braces for a slowdown in 2009

Occupancy rates drop as room tariffs rise

KOLKATA/MUMBAI: The hotels industry, which is facing higher property prices, increase in efficiency charges and rising attrition rates, seems to be headed for a slowdown.

Already due to a 24% rise in hotel room tariffs, occupancy rates have dropped 3% in February 2008, over the same period last year, across the premium segment.

Chender Baljee, chairman and managing director, Royal Orchid Hotels, said, “There is no doubt that the hotel industry is facing a slowdown. Hoteliers will have to be cautious while making investments. You cannot buy properties at any price because returns are not strong any more.”

According to the latest Crisil Research report, the average revenue per available room (RevPAR) in the premium segment in Mumbai, Delhi, Kolkata, Bangalore, Pune and Goa increased by 19.2% from Rs 9,895 in February 2007 to Rs 11,794 in February 2008.

However, occupancy rate during this period declined to 85% from 88% registered in February 2008.

Anuj Puri, chairman and country head, Jones Lang La Salle Meghraj, said, “Further hike in tariff rates would stop by second quarter 2009 because by that time more supply would hit market and everybody will have to lower their prices to sustain occupancy. In fact, occupancy is going to go down due to introduction of business and budget hotels.”

According to an IIFL report, there has been little addition to supply over the past couple of years, while demand has surged on the back of a rapidly growing economy. Consequently, hotel room tariffs have been rising at over 25% annually for the past couple of years.

Rate hikes happen by about 8-10% every year but last year was unusual when tariffs rose by 25%, a senior Le Meredian official said.

This year the rate hikes will happen in August-September, but in Mumbai there is very little chance of rate hikes because supplies are going to begin in second quarter of 2009.

Anshuman Magazine, CMD, South Asia, CB Richard Ellis, said, “The prices will soften by the end of the year as the supplies would start coming in from FY09 which would bring tariffs to more realistic level.”

Pradeep Kalra, vice-president, sales and marketing, Sarovar Hotels, said, “The drop in occupancies happened in select markets like Bangalore and Hyderabad, because of the ‘washed down’ factor - when booked rooms are cancelled.”

There are about 1,10,000 hotel rooms in all categories and segments in India. That’s a strikingly low number by global standards. In comparison, China has 10 times as many rooms and the US has 40 times as many (by one estimate, New York city alone has as many star-rated hotel rooms as the whole of India.)

He said, “In actual terms, this is not a drop in occupancy but a correction.” Sarovar, which has the five star Park Plaza and Premier in its portfolio, felt a 4-5% drop in occupancy in its Hyderabad property.

 Rajiv Kaul, senior vice president, The Leela Group, said, “Going forward, there would be a ceiling to the tariff hikes. The increase, if at all would be 8-10%.”

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