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| Horwath HTL’s Vijay Thacker said hotel supply in India will grow more than 50% during the next three years. |
GURGAON, Haryana—With slightly more than 80,000 rooms, the Indian hotel industry has long been labeled as undersupplied. But labels and realities don’t always align, explained Vijay Thacker, director of Horwath HTL India, during the opening session of the 2013 Hotel Investment Forum India.
Despite steady demand growth, the country’s hoteliers have seen occupancies dwindle in recent years, from 63.1% during 2008 to 58.1% during 2012, according to the “India Hotel Review Report – 2012” report from STR Global, sister company of HotelNewsNow.com, and in conjunction with Horwath HTL.
The blame, Thacker said, can be divided between the global economic crisis, which stalled travel worldwide, as well as an ambitious infusion of supply into the developing nation.
“Demand growth obviously was impacted by all these negative sentiments, and it is that unfortunate timing, that mismatch of growth in demand and growth in supply ... that has caused a lot of declining occupancies we are finding,” he said.
Added Elizabeth Randall Winkle, managing director of STR Global, in a later presentation: “If you look at the demand growth (in the Asia/Pacific region), it is much more of a moderately paced line compared to what you’re seeing in the supply.”
She added that India and other markets in the region must focus more of their attention on demand generators to ensure domestic and inbound demand keeps pace with new supply.
Between 2006 and 2012, India’s hotel industry saw a 60% increase in rooms, Thacker said. During 2012, that pace slowed slightly and only 8,600 branded hotel rooms were absorbed for a total of 81,227 rooms.
That number is only projected to get bigger, Thacker said. If every announced project actually came to fruition, an additional 91,000 branded rooms would enter the market by 2017—a tally that is unlikely, he said.
(See projected 2013 hotel openings by region.)
“Realistically, if you ask me, it’s going to be about 45,000 to 50,000 rooms,” Thacker said. “There’s a lot of difficulty in getting debt. There are a lot of projects that are stuck for approvals or other reasons.”
Still, that means India—a market in which performance has declined steadily since 2007—will reach the 130,000-room mark within three years, he said.
Is that imbalance feasible, Thacker asked hundreds in attendance at the Leela Kempinski Gurgaon Delhi.
Doubling demand
The answer, he said, is yes.
“2012 wasn’t a great year. It was a year a lot of us would like to forget,” he admitted. But performance metrics disguise broader, positive shifts in demand.
Between 2006 and 2012, demand in India doubled, Thacker said. During the past decade, it has tripled.
And there exists even more room for growth, particularly amid a burgeoning middle class that is only now beginning to make its presence known.
Not surprisingly, much of that hotel development has been focused on the middle tier, Thacker said. Whereas during 2006 two-thirds of branded supply was in the high end, that percentage dwindled to less than half this past year.
“There is a preponderance of the mid-market, economy and budget hotels, which is great. That’s what our country needs,” Thacker said.
The introduction of lower-tiered supply also partly explains why the country’s performance metrics have declined in aggregate, he added. Average daily rate, for example, fell from 8,293 Indian rupees ($152) during the peak in 2007 to 6,175 rupees ($113) during 2012, according to the “India Hotel Review Report – 2012.”
Likewise, according to the report, revenue per available room decreased from 5,669 rupees ($104) during 2007 to 3,587 rupees during 2012 ($65).
But building a base for domestic leisure travel will yield dividends, Thacker said.
“India has unfortunately been driven largely by business travel. … We need to change that. We need to look at our leisure sector, not just in the leisure destinations but also in some of our larger cities.”
Making nice with MICE
Tremendous opportunity also exists within the meetings, incentive, conference and event business, Thacker said.
“The MICE segment—that is something that we are sorely missing,” he said, adding that India lags behind other Asian countries considerably in such offerings.
“It’s a crying shame that a country of our size … we do not have international standard convention centers,” Thacker said.
MICE business would also help supplement the slowdown in travel that begins after the February high period and bottoms out during May and June. “MICE is going to play an important role in pushing this up,” he said.