50,000 new hotel rooms to come up in 6 years

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Akshay Kulkarni, regional director – hospitality, South & Southeast Asia Cushman & Wakefield

The hospitality industry has been through a metamorphosis of sorts over the past five years. The large number of developers who had announced projects on a megascale and across the country has realised that it is not easy to develop hotels. Even the so-called easing of norms and licences to get hotels ready for the Commonwealth Games did not help in the timely completion of many projects. The craze for multiple mixed-use projects and luxury hotels is now turning to realistic projects. Most projects were revisited in the past three years, and only those, which were absolutely feasible have gone through. Some projects moved from being gut feel oriented to market driven. Funding projects has been another issue, as loans are hard to get.

Despite all these issues, a record number of hotels are under development and will hit the market in the next two years. India’s top six cities are expected to see a total of 50,000 new hotel rooms across categories in the next five-six years. This is in response to the steady growth the hospitality sector has recorded over the past few years. The 2012 year-end alone is expected to see 14,800 fresh keys. Out of the total expected supply for the year, 2,000 new hotel rooms are already in the market. Also, in the coming two years, another 3,000 to 4,000 rooms are expected to hit the market.

The trend, however, is changing and mid-market hotels will mostly be developed in the near future. Demand continues to be stable and will grow in the times to come, but supply growth may outrun growth in demand. Occupancies will drop and then pick up over the next three-four years, as the supply hitting the market will reduce. Prices will be stagnant or not grow at expected margins. Overall, profitability of hoteliers will be impacted since costs will rise and revenues plateau.

India’s hospitality sector has been witnessing interest from a variety of segments ranging from meetings, incentives, conferencing, exhibitions wellness tourism, spiritual and pilgrimage tourism, apart from the traditional business or leisure travel. The demand has been strong from both foreign as well as domestic tourists. Given the rather diverse nature of demand, the hospitality industry is also looking at creating adequate products to service the varied tourist requirements. With the support and initiatives by the governments at various levels, the hospitality sector is moving towards comprehensive growth.

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