RESEARCH

www.knightfrank.com

Q4 2008
INDIA
HOTEL
Review
Knight Frank

HIGHLIGHTS
! The Indian hotel industry, a significant stakeholder of the tourism sector,
witnessed the trickle down effect of the global crisis.

! Foreign tourist arrival growth was marginal during Jan-Oct 2008 and recorded at
4.32 million as compared to 3.95 million during the same period in 2007.

! The impact of the recent terrorist attack on Mumbai city was adversely felt in the
Mumbai hotel industry as well as other markets.

! The growth of foreign tourists inflow pegged at around 15-16% in the beginning of
2008, is now expected to be around 10%.

! Over 42,000 new rooms are expected to be added to current inventory across 10
cities by end-2012.
Q4 2008
INDIA
HOTEL
Review
EDITORIAL
Figure 1
Distribution of supply by 2012*
Chennai
Bengaluru
9%
12%
Kolkata
8%
NCR
13%
Hyderabad
15%
Mumbai
Kochi 14%
4%
Jaipur
3% Goa
Pune
7%
15%
* Supply includes upcoming rooms in 5-star Deluxe, 5-star &
4-star hotels
Source: Knight Frank Research
The initial slowdown of the US economy
during the end of 2007 and early 2008 did
not raise much concern among the policy
makers and economic managers of the
country. It was argued that the Indian
economy would be relatively immune to this
crisis because of its “strong fundamentals”
and apparently well-regulated banking
system. However, with the beginning of FY
09, the major economies in Europe and Japan
started declining, giving out strong signals of
global financial and economic crisis. In later
developments, fast growing countries like
India and China were also affected by the
heat of this crisis. The extent of the impact of
the economic slowdown on the growth of the
Indian economy can be gauged by the fact
that it's growth has declined to 7.6% in the
second quarter (July -September) of FY 09 as
compared to 9.6% recorded in the same
period during last year. The official growth
forecast for FY 09 has been revised downward
to 7%. The IT/ITES, real estate and the
financial sectors, which in the past had been
primarily responsible for driving economic
growth, are the worst hit with substantial
reduction in business activities and high
lay-offs. The manufacturing sector has
experienced dismal growth and the equity
markets have hit multi-year lows. Domestic
inflation touched a high of 12.63% in the
02
second week of August. However, in the past
few months the tight monetary policy of the
government has been able to tame the
inflation rate considerably. On the external
trade front, exports have declined for the first
time in the month of October in the last seven
years and the Rupee has depreciated (against
US dollar) more than 25% during the last 5-6
months. In a nutshell, it can be said that the
financial sector shocks, depressed business
confidence and slowing consumption
demand have dented the country's economy
to a significant level.
Meanwhile, the hotel industry, which is a
significant stakeholder of the Indian tourism
sector, witnessed the trickle-down effect of
the global crisis as well. The year 2007 had
been a successful year for the industry as it
benefitted extensively from the growth of the
country's economic activities. Enhanced
business and leisure travel from abroad
helped India to record 5.08 million of foreign
tourists in 2007, an increase of 14.3% over
2006. With more than 9% GDP growth in
2007, the economy looked buoyant with new
job opportunities, rise in salary and
disposable income and a high growth
trajectory. Of late, the effects of the global
economic meltdown and downturn of the
Indian economy are visible on the tourism
sector. Foreign tourist arrivals during the
period January-October 2008 was recorded at
4.32 million as compared to 3.95 million
during the same period in 2007, indicating
moderate growth of 9.4%. Notably, a large
proportion of the foreign tourists who came
to India in 2007 belonged to the United
States and Britain, those being amongst the
hardest-hit countries in the global economic
slowdown. Most of the domestic companies
have drastically reduced their
conferences/conventions and business trips
in order to reduce pressure on their margins.
According to Knight Frank Research, there are
currently close to 42,022 rooms across the
5-star Deluxe, 5-star, 4-star and heritage
categories in planning or under-construction
in the cities of NCR, Jaipur, Kolkata, Mumbai,
Pune, Goa, Bengaluru, Hyderabad, Chennai
and Kochi. The study also revealed that till
Q3 2008, the average occupancy rate across
these ten cities in the 5D, 5-star and 4-star
categories was around 68% and the Average
Room Rate was about Rs.7,476. Significantly,
it was observed that occupancy rates
declined by around 10-15% across the
premium segment of hotels since the past
one year, while the budget hotels maintained
their previous levels.
In addition to the cascading effects of the
ongoing economic crisis, the tourism sector
in India was further hit by the terrorist attacks
in Mumbai. The attack has had a direct
impact on this sector since it has targeted
premium category hotels and foreigners. The
period October-February being the peak time
for the tourism sector in India, even a short
term effect of the attack is likely to have a
substantial impact on the revenue generation
of the hotel industry. Industry experts had
pegged the growth of foreign tourists' inflow
at around 15-16% in the beginning of 2008.
However, due to the economic crisis and
terror attack, the year-on-year growth of the
number of foreigners is currently expected to
be around 10%.
Given the current economic scenario as well
as the uncertainty brought about by the
recent attacks on foreigners, the Indian hotel
industry appears to be on shaky ground.
While most of the premium hotels faced room
cancellations after the Mumbai attacks, the
dips in occupancy rates are expected to be of
short term. As a matter of fact, the global
economic turmoil did not have much impact
on the ARRs, as evident in this report. Major
hotel players are expected to go ahead with
their projects, while keeping a low profile on
their expansion plans. Besides, a number of
them have ventured into serviced
apartments, which is touted to be the most
preferred segment to attract long-stay
business travellers. The revival of the
country's economy shall dictate the way
ahead for the hotel industry in the next 12-15
months.
www.knightfrank.com

Overview infrastructure and well established trade and

NATIONAL A niche combination of luxury and

commerce sector differentiate it from India's
other metro cities. A major proportion of hotel

CAPITAL
sophistication has led the NCR to become business generated in the NCR comprises
one of the prime destinations in the country international travellers, and about 70% of the
for leisure and business tourism. The NCR, total foreign travellers to the NCR are

REGION including the national capital New Delhi and

the satellite towns of Faridabad, Gurgaon,
business travellers.

(NCR)
Noida and Ghaziabad, form a substantial part
of India's key economic zones. Factors such
Current Scenario
as its rich history, excellent national and Over the last few years, tourism in the NCR
international connectivity and the access it has grown to include heritage tourism,
Figure 2 provides to the northern hill stations render adventure tourism, medical tourism and eco-
Movement in ARR (5D,5,4-star Hotels) the region one of the most favoured tourism. Various segments, including
destinations for trade, commerce and tourism. domestic and international corporate
12,000
travellers, bureaucrats, sportsmen and
Rapidly improving infrastructure, widespread transitional tourists form the main clientele
10,000
economic activity, availability of skilled for the hospitality sector. New Delhi, as the
manpower and decentralisation of urban nation's capital, regularly hosts various
8,000
development policymaking have in recent political meets that augment the demand for
times triggered growth in the region. Further,
Rs.

6,000 hotel rooms in the region. Healthy industrial

the construction of the DND Expressway and growth and better infrastructure, both of
4,000 Gurgaon Express Highways, phased which are conducive for trade events, have
completion and rapid spread of the Delhi boosted business traffic and demand for
2,000 Metro Project and growth of the IT/ITES, business hotels.
automobile and pharmaceuticals sectors
0
have strengthened the economic and The NCR has witnessed a considerable
2008
2004

2006
2005

2007

Q3

business sector, resulting in increased increase in the year-on-year number of

Source: Knight Frank Research business travel to this region.
Due to the NCR's booming industrial and
trade activity and proximity to the northern
hills, the region not only witnesses a lot of
transitional tourists, but also plays host to a
Figure 3
large number of foreign and domestic
Occupancy Rate (5D,5,4-star Hotels) business and leisure travellers. Factors such
80 as the NCR's central location, state-of-the-art
foreign and domestic travellers. The
compounded annual growth rate for foreign
and domestic travellers to the NCR region has
been 12.7% and 22% respectively since
FY 2002-03. Demand pressure in the region
has been encouraging developers to venture
into new hotel projects.

78

76
Percent(%)

74

72

70

68

64
2008
2004

2006
2005

2007

Q3

Trident, Gurgaon
Source: Knight Frank Research

03
Q4 2008
INDIA
HOTEL
Review
Currently, the total room inventory across the
NCR is approximately 11,000 rooms. Out of
the existing inventory, 63% of the rooms are
in the 5-star Deluxe and 5-star category, 15%
are in the 4-star category and 22% in the
budget segment. The growth in the number of
foreign and domestic business travellers to
the region is reflected in the growth in room
supply in the 4-star category. Two hotels in
this category, namely The Ramada Plaza, with
a room inventory of 445 rooms, and The IBIS
Hotel, with a room inventory of 217 rooms,
became operational during 2008. During the
early part of 2009, the Claridges Group is
expected to introduce an additional supply of
240 rooms in the 4-star category in SurajKund.
Between FY 2004-05 and FY 2006-07, the
average occupancy across the NCR hotels
grew from 70% to 79%. In FY 2007-08, the
occupancy rate was approximately 77%,
which is expected to further decline by the
end of FY 2008-09. This marginal decline in
occupancy levels can be attributed to the
global economic slowdown, political unrest
in Nepal & Tibet, the Gujjar movement in the
NCR and bomb blasts in various parts of the
country.
ARR in the region has gradually increased
from Rs.5,000 in FY 2004-05 to Rs.7,500 in
FY 2006-07. As on the third quarter of 2008,
the ARR was is approximately Rs.10,500.
Room revenue contributes almost 60% of the
total revenue generated in the hotels while
the Meetings, Incentives, Exhibitions and
Conferences (MICE) segment accounts for
approximately 15% of total revenue.
Radisson, Gurgaon
04
The revenue share of the Food & Beverage
(F&B) sector is limited due to competition
from local restaurants and food chains.
Remunerations and salaries represent the
major operational cost for NCR hotels.
5-star Deluxe and 5-star Hotels
With an inventory of close to 7,000 rooms as
of FY 2007-08, 5-star Deluxe and 5-star hotels
comprise the largest share of total room
inventory in the NCR. The amalgamation of
high class luxury rooms and business
conferencing facilities and services enables
this segment to cater to a mix of leisure and
high-end business travellers to the region.
The niche clientele of this segment has
helped it achieve a steady ARR growth rate of
approximately 15-20% since FY 2005-06. The
ARR value in FY 2007-08 for the segment was
approximately Rs.10,000. In the next few
months, the growth in ARR values are
expected to witness a slowdown, primarily
owing to the security threat in the country
and the global recession, which has forced
several domestic and international
companies to scale down travel and
outstation stay of employees. The occupancy
across the segment for the year FY 2007-08
was around 75%.
In 2010, the NCR will host the Commonwealth
Games, which will attract a lot of sports
tourism from across the globe. Foreseeing
increased demand for room nights, a number
of hoteliers are initiating new projects in the
region. By the end of 2010, the NCR is
expected to witness an additional supply of
close to 3,500 rooms in the 5-star Deluxe and
5-star category. Brands like The Crowne Plaza,
Radisson, Indus Group and the Taj Group will
all contribute towards the total supply. It
remains to be seen whether this surge in
supply is sustainable once the
Commonwealth Games are over.
With an
inventory of
close to 7,000
rooms, 5-star
Deluxe & 5-star
hotels
comprise the
largest share
of total
room
inventory.
4-star Hotels
The NCR being the centre for a lot of
commercial business activities, political
meets and healthcare development, the
number of business travellers to the region is
high. With about 65-70% of corporate
clientele, the 4-star segment witnessed an
average occupancy of 85% in FY 2007-08. The
IT/ITES sector and the automobile and
pharmaceutical industries have been the
major demand drivers in this segment. The
ARR during the FY 2007-08 was Rs. 7,600.
The current room inventory for 4-star hotels in
the NCR is 1,623 rooms. By the end of 2010,
the segment is expected to see an additional
room supply of 1,800 rooms. Micro-markets
in NCR like Gurgaon, Noida and Greater Noida
will contribute towards a major share of this
additional supply.
www.knightfrank.com

Budget Hotels is forecasted to continue for about another

month, especially as foreign government
Corporate travellers seeking accommodation
agencies have declared India to be unsafe for
for longer durations prefer budget
travel. The revival of the industry post the
accommodation as compared to high-end 5
Mumbai attacks is expected to take up at the
and 4-star properties. With basic
beginning of 2009. Hotel authorities in the
accommodation services like air-conditioned
NCR have taken up various measures to
rooms, in-house restaurants, laundry
maintain high occupancy levels during this
facilities and gymnasiums, budget hotels in
time of distress. Hotel security is being
the NCR market have achieved a high average
beefed up across the board, and certain
occupancy of 82% during the year FY 2007-08,
hotels are tying up with travel authorities to
while the ARR for budget hotels was Rs.3,000.
maintain continuity of business. Rooms are
However, the global economic slowdown is
available at a discounted price, which is
having an impact on the business of these
expected to lower the ARR for the month of
budget hotels as well. With corporate houses
December 2008 by about 20%.
cutting costs and reducing business travel
and travel durations, occupancy during the In the long run, adequate infrastructure Jaypee Vasant Continental, Delhi

year FY 2008-09 is expected to dip marginally. development will be in place to ensure a

healthy hospitality industry within the NCR. into joint ventures with international brands
Figure 4
Encouraging government policies such as the to set up hotels in the region. The Hilton
Category-wise ARR
entitlement to duty-free imports of hospitality Garden Inn in Rohini and Saket is a DLF and
14,000
products and services have facilitated Hilton joint venture and “The Regent Hotel” in
12,000
considerable capital inflow from the global Greater Noida is an upcoming joint venture
market. Recent transactions of hotel plots at between Unitech and Carlson Group.
10,000 prices which are thrice the reserved level
show the growing interest of investors in the The entry of international players is expected
8,000
region. to strengthen the NCR market. In order to
Rs.

6,000 promote tourism and hospitality

As part of the 2008 Union Budget, the infrastructure development in India, a
4,000 Finance Minister announced the extension of number of PPP initiatives are being
the five-year tax holiday for 2-star, 3-star and undertaken as joint venture projects with
2,000
4-star hotels and convention centres leading developers like Unitech, DLF and
0 specifically catering to the Commonwealth Parsvnath. Developments like high-speed
Budget
5-star
Deluxe

5-star

4-star

Games in Delhi, Gurgaon, Ghaziabad and express highways, information technology

Minimum Maximum
Source: Knight Frank Research
Outlook
The hospitality industry in the NCR has been
dented by the global economic recession and
security threat, highlighted by a number of
terrorist attacks across the country this year.
This has led to a dip in the occupancy rates in
the NCR hotels in the third quarter of the
current year. Hotels across the NCR have
witnessed cancellations of about 15-20%
from the foreign international travellers after
the Mumbai blasts. The decline in occupancy
Faridabad. Due to this, the local and platforms and energy and power projects are
international developers have initiated more a few areas where PPP ties are being explored.
hotel projects in the region. To benefit from Such initiatives are expected to boost
this tax holiday, projects are required to be economic growth, and more specifically
constructed and operational anytime hospitality sector growth, in the NCR over the
between 1st April, 2008 to 31st March, 2013. coming years.
Due to high land cost and with a view to
mitigate risk, the concept of hotels in malls is
also flourishing. Budget hotels in malls which
offer shopping experience with entertainment
facilities under one roof are eliciting attention
from various hospitality players. 'The Leela'
Hotel in the Ambi Mall and 'Clarks Inn' in the
Pacific Mall are examples of such projects.
Developers like Unitech and DLF are entering

05
Q4 2008
INDIA
HOTEL
Review

Jaipur
Meetings, Incentives, Conventions and generated by the business segment vis-à-vis
Incentives (M.I.C.E) rates, coupled with the the leisure segment. Increasing corporate

Figure 5
historic ambience of the city are now making
Jaipur a favoured destination for IT/ITES,
Movement in ARR (5D,5,4-star Hotels)
pharmaceutical and Banking & Insurance
7,000
companies to organise their seminars and
6,000 meets. The city, which was previously
recognised more as a key tourist destination,
5,000
is now being explored as an operational base
presence in Jaipur is changing the profile of
the hospitality industry in Jaipur. Services like
conference rooms, board room layouts and
executive lounge services are extremely
sought-after in the city. September to March
is considered to be the 'Season' period for
the leisure segment, whereas for the

4,000
for a number of IT/ITES and pharmaceutical business segments there is no such
companies. demarcation.
Rs.

3,000
Factors like low operational cost, availability
2,000 of cheap and abundant labour, favourable Services like
economies of scale and low attrition rates
conference
1,000
have been responsible for lending the city a
0 new outlook. As a result, the real estate
rooms, board
2008
2004

2006
2005

2007

scenario in Jaipur has witnessed substantial

Q3

growth in the past 3-4 years. This has been

Source: Knight Frank Research
amply supported by the presence of big room layouts
Figure 6 projects by Emaar MGF, Ansals, Mahindra,
Occupancy Rate (5D,5,4-star Hotels) OMAXE, Unique Builders and other leading and executive
developers.
80
lounge
70
Current Scenario services are
60
The past trends reveal that heritage and
50 culture tourism were the major demand extremely
Percent(%)

drivers for hospitality in Jaipur. However, of

40
late, a reasonable amount of hospitality sought-after
30
demand is emanating from the corporate
20 sector as well. Important pharmaceutical in the city.
residential conferences, IT and banking
10
meets, etc. are changing the hospitality In recent times, the total inventory of hotel
0 rooms across all segments has seen an
outlook of the city. Currently, around 40% of
2008
2004

2006
2005

2007

upward trend.
Q3

the total hospitality demand in Jaipur is

Source: Knight Frank Research

Overview
Jaipur, the capital of the state of Rajasthan,
has emerged as a fast growing business
centre in North India. Established in the year
1772 by Maharaja Sawai Jai Singh II, the city
has great historic significance attached to it.
Being the first planned city of India, the state
government has not just taken ample care to
preserve its historical sites, but has also
made concerted efforts to ensure widespread
infrastructure developments. Affordable
Sawai Man Singh, Jaipur

06
www.knightfrank.com

The total room supply has gone up to 2,923 Heritage Hotels

rooms from 2,655 rooms since FY 2006-07. A
Heritage Hotels have been the legacy of
large share of the additional supply comes
Jaipur's hospitality industry. The provision of
from two hotels, viz. The Ramada, which
royal services like solar heated swimming
became operational in early 2008 with an
pools, in-house beauty parlors, shopping
inventory of 160 rooms, and The Golden Tulip,
arcades, sports complexs, horse rides and
which became operational towards the end of
golf courses makes these hotels the epitome
2007 with an inventory of 108 rooms.
of royal luxury. However, the global economic
Category wise, there are a total of about 367
slowdown, security threats across the nation
rooms in the heritage category, around 1,144
and increasing corporate travellers to the city
rooms in the 5-star category and about 657
vis-a-vis leisure travel are leading to a decline
rooms in the 4-star category. Notably, the
in the business for heritage hotels in Jaipur.
4-star category has witnessed the maximum
The occupancy level for heritage hotels in
growth in inventory since 2004. This gives a
Jaipur was around 50% in FY 2007-08. The
clear picture of the growing demand for
ARR for the heritage segment has been
business class hotels in Jaipur.
Rs.17,000 for the FY 2007-08. Trident, Jaipur

Jaipur's hospitality industry witnessed an

average annual occupancy level of about 65% 5-star Hotels
in FY 2007-08. Remarkably, in FY 2007-08, The 5-star hotels in Jaipur have been catering
while the off-season occupancy in Jaipur was to a mix of luxury and a high-end corporate
around 50%, the seasonal occupancy was as clientele. With several corporate meets
high as 80-85%. happening in the city throughout the year the
Figure 7 segment has seen a stable increase in their
Category-wise ARR occupancy and ARR levels since FY 2003-04.
The occupancy levels have grown from being
25,000
62% in FY 2006-07 to 67% in FY 2007-08. The
ARR for 5-star hotels during FY 2007-08 was
20,000
Rs.4,500, which has almost doubled since
FY 2003-04. Although the leisure travel in the
15,000
city is declining, the corporate clientele
Rs.
contributing the remaining 40%. The growth
in the F&B business is primarily due to the
growth of corporate conferences and
exhibitions in Jaipur.
An increase in the number of business
travellers in Jaipur has prompted foreign
players like Radisson, The Grand, Ten Hotels,
Dusit International and Lemon Tree to set up
new hotel projects in the city. Existing players
like The Royal Orchid Group, Jaipur Golden,
The Fortune Group and The Marriot Hotels are
also setting up new hotels in the 4-star and
5-star categories. Around 1,450 new rooms

generates enough business for the 5-star are expected to be added to the existing
10,000 segment to sustain its growth in the following inventory of 4-star and 5-star hotels in Jaipur
year. by the end of 2010. The Radisson Group's
5,000 hotel, with an expected inventory of 250
4-star Hotels rooms, is the biggest upcoming project. A lot
of new projects have been undertaken with
0 In Jaipur, growing corporate activities like
the idea of mixed (retail cum hospitality)
Heritage

5-star

4-star

business conferences & conventions, trades

Minimum
Source: Knight Frank Research
The occupancy levels for Jaipur have
witnessed a 16% aggregate growth since
FY 2004-05. Besides, the ARR values in Jaipur
have almost doubled from Rs. 2,680 in
FY 2004-05 to Rs.5,400 in FY 2007-08.
space in Jaipur. The MGF Metropolitan Mall,
and exhibitions, etc. in Jaipur, have led to
by the Emaar-MGF Group will host a 5-star
Maximum considerable demand for 4-star business
Fortune Group hotel with an inventory of 90
hotels in Jaipur. With a corporate clientele
rooms.
base of 85-90% throughout the year, the
segment witnessed an occupancy level of
67% in FY 2007-08. The ARR value for Outlook
FY 2007-08 was Rs.3,500.
Security threats in India are having a
considerable impact on the hospitality
According to Knight Frank research,
business across the nation. The negative
approximately 60% of total hotel revenue is
impact of these events is downsizing the
generated by room rents, with F&B
growth potential of India's hotel industry.

07
Q4 2008
INDIA
HOTEL
Review
This is also adversely affecting the revenue
generating potential of important hospitality
pockets across India. Moreover travellers are
now finding alternative leisure destinations.
The recent terror attacks in Mumbai have had
a negative impact on Jaipur's hotels business
as well. In the week post the Mumbai blasts,
the hotels in Jaipur have seen an average
cancellation of reservations of about 20-25%.
Although the months of Nov-Dec are
considered to be the peak hospitality
seasons in Jaipur, a number of foreign leisure
travellers are either delaying or cancelling
their trips to the city. Major pharmaceutical,
IT and banking companies, which generally
schedule their residential conferences in
January in Jaipur, have either deferred or
rescheduled these events to late February.
The impact of the attacks on Mumbai cannot
be assessed as of now entirely as it
completely depends on how the international
authorities comment on the security situation
in India.
The revival of the industry depends on how
the national and international media portray
the entire situation. Concrete security
measures are being incorporated by the hotel
administrations in Jaipur. These measures
include training of housekeeping staff on
security standards and rigorously conducting
identification checks for all walk-in travellers.
In light of declining demand for room nights,
hotels across Jaipur have reduces tariffs by
30-35%.
Country Suits Inn, Jaipur
08
Despite the temporary slowdown caused by
the recent terror attacks, all infrastructure
initiatives that were proactively planned by With high
the central and state authorities to further
strengthen the position of Jaipur as one of the seasonal
preferred leisure destinations in India are still
potential deliverables. With Rs.200 billion
demand, the
worth of infrastructure investment proposed
in Rajasthan, Jaipur is expected to see better
expected
infrastructure support and provisioning of
amenities within the city limits. Better
supply of 1,450
connectivity to the city on account of low-cost
airlines has led to increased consideration of
new rooms by
the city as a venue for conventions and high-
profile marriages.
2010 will bring
High-end conferencing facilities with state-of-
equilibrium in
the-art business infrastructure support have
boosted the hospitality demand from the
the market.
corporate segment. This will further augment
the share of room revenue in the total
Emerging destinations for new hotel projects
revenue generation pie and also create new
include Delhi Road due to the development of
demand for rooms.
industrial parks, Ajmer Road on account of
The Hotel Policy 2006 provides special development of integrated townships and
provisions for development of hotels in SEZs and Tonk Road owing to new
Jaipur. The policy includes reservation of land commercial developments.
parcels within the city for hotel projects,
Jaipur, with its historical charm, will continue
availability of hotels plots at a reduced
to attract international tourists. Growing
reserved price (almost 50% of commercial
corporate business will further boost the
reserved price), 100% exemption on
hospitality business. With the city emerging
entertainment tax and 100% exemption from
as a major centre for gems and jewellery and
land conversion charges. All these provisions
textiles exports, a further boost to the hotel
are expected to increase the supply of hotel
sector is expected. Seasonal occupancy
rooms in the city.
levels of around 80-85% clearly suggest that
there is an ample demand for hotel rooms in
Jaipur. With high seasonal demand, the
expected supply of 1,450 new rooms by 2010
will bring equilibrium in the market,
stabilising the volatility in ARR movements.
www.knightfrank.com

KOLKATA
real estate opportunities have led prominent
real estate developers to take up significant
land holdings in the suburban locations. The
Figure 8
Eastern Metropolitan Bypass is being
Movement in ARR (5D,5,4-star Hotels)
increasingly viewed as the Central Avenue of
8,000
modern Kolkata while Rajarhat is being
7,000 promoted as an IT hub in the east of Kolkata.
The city has also been attracting a number of
6,000
real estate investors and developers with
5,000 financial muscle. These investors, both
foreign and Indian, have identified prime
Rs.
all segments, including the budget hotels. A
majority of the proposed supply is
concentrated towards north-eastern Kolkata
with 69% of the hotels coming up in this part
of the city. Out of this, the maximum supply is
expected to be contributed by the EM Bypass
micro-market, while approximately 1,012
rooms are expected to be added to the
premium segment in the Rajarhat micro-
market by 2013. These rooms are expected to
cater to the demand emanating from the

4,000
areas for investment while developers such commercial developments in Rajarhat as well
3,000
as DLF and Unitech already have projects as the IT hub at Salt Lake Sector V. The
2,000 operational in the city. EM Bypass stretch has only one operational
5-star Deluxe hotel (ITC Sonar Bangla) while
1,000
In recent times, Kolkata has witnessed
four additional premium hotels are expected
0 significant demand for hotel rooms, leading
to be operational by 2013.
the hospitality sector to thrive after a lull of
2008
2004

2006
2005
2003

2007

Q3

almost two decades. This could be primarily 5-star Deluxe and 5-star Hotels
Source: Knight Frank Research
attributed to the strong growth of the IT/ITES
The period between 2002-07 was stagnant
Figure 9 sector in the city. There has been a
with no supply in the 5-star and 5-star Deluxe
Occupancy Rate (5D,5,4-star Hotels) substantial increase in the demand for good
segment. The city witnessed considerable
100
quality short-stay accommodation from
increase in the room supply with the entry of
Indian as well as foreign executives. This
ITC Sonar Bangla and the Hyatt Regency in
essentially implies that increased commercial
80 2002, which accounted for an addition of
activity in the city has been instrumental in
around 450 rooms to the city's hotel
creating higher demand for hotel room
60 inventory.
Percent(%)

nights. Also, with Kolkata being the only

metropolitan city for the entire eastern belt of At present, approximately 85% of the existing
40 the country, most of the hotels have high room stock in Kolkata falls under the 5-star
occupancies arising out of increased tourist and 5-star Deluxe category. The rack rates for
20 inflows. these up-market hotels are relatively higher
and occupancies have been consistently
0 Current Scenario increasing since the last four years. The gap
2008
2004

2006
2005
2003

2007

between the demand and supply of hotel

Q3

Most of the existing hotels in the city are

Source: Knight Frank Research
Overview
Kolkata, the capital of West Bengal, is the
main commercial and financial hub of eastern
India. Formerly the capital of India during the
British rule, the city is famed for its rich
cultural heritage and distinct socio-political
set up.
Kolkata, of late, has been actively competing
against other Indian cities as a preferred
corporate destination. The emerging IT profile
of the city and the consequent generation of
room has also widened, with no room
located closer to the CBD, as the commercial
addition since 2002. All these factors have
developments in the peripheral micro-
markets came up only recently in the last 4-5
together led to a healthy increase in ARR
values across segments. However, the ARRs
years. While the city currently has a dearth of
are expected to dip marginally in the next
hotel operators in the city, in the next 34
three years, post 2009. This can be attributed
years, Kolkata is set to witness an influx of
to the quantum of supply expected to be
international brands operating in Rajarhat,
operational in the forthcoming 2-3 years.
Salt Lake and EM Bypass.
About 800 rooms are expected to be added in
Over the period 2000-07, hotel room supply the 5-star and 5-star Deluxe segment by 2012,
witnessed a sluggish average annual growth out of which around 225 keys will be ready in
rate of 6%. Significantly, a total of 3,831 2010.
additional room keys are expected to be
added to the market by the year 2012 across

09
Q4 2008
INDIA
HOTEL
Review
Some of the major brands expected to be
operational in the coming years include joint
venture projects by DLF and Hilton (239
rooms, EM Bypass); Unitech and Ritz (200
rooms, Tollygunge); DS Group and Carlson
(320 rooms, near the airport) and Berggruen
Group (Rajarhat). The Apeejay Surrendra
Group Park Hotels Ltd. is also coming up with
a 5-star hotel on the EM Bypass. However, a
few of the hotel projects announced have
been stalled owing to the current economic
slowdown.
The ARR value for the 5-star and 5-star Deluxe
segment was around Rs.6,310 in 2007, which
came down to an average value of Rs.6,080
during the third quarter of this year. The
average occupancy rate in the city recorded
74% during the same period this year, which
reflects a decline of about 7% over the past
year's level. This decline in ARRs and
occupancy rates reflects the low market
sentiments as well as the slackening rate of
growth in the IT/ITES sector, which was
primarily responsible for driving the demand
for hotel rooms in the city.
4-star Hotels
The occupancy rates of the hotels in the 4-
star category have been higher as compared
to those of the 5-star and 5-star Deluxe hotels
in Kolkata due to the lesser number of room
keys available. Around 437 rooms are
expected to be added to the 4-star category
by 2012. The ARR figures stood at an average
value of Rs.5,025 during
May-Sept 2008.
Amongst the new 4-star projects underway,
note can be made of the 150 room hotel by
Bengal Ambuja and a 242 room project by the
hospitality group Marriott to be developed by
the Unitech Group. Both these projects are
located in Rajarhat and are scheduled to be
operational by 2011-12. Meanwhile, Peerless
Inn, an existing 4-star hotel, has plans for
expansion in terms of addition of rooms and
is expected to be converted into a 5-star
Deluxe hotel by 2010.
10
Figure 10
premium hotels and the 4-star hotels to some
Category-wise ARR extent, the budget hotels have not been
10,000 affected perceptibly. This can be attributed to
the cost cutting strategies applied by many
8,000 firms who are increasingly shifting their
executives to budget hotels from 5-star and 4-
star hotels. Also, the lack of new supply in
6,000
this category of hotels has been responsible
Rs.
for the high occupancy levels. Going forward,
4,000
around 400 rooms are expected to come up
in the budget segment by the end of 2012.
2,000
Outlook
0
The period between the years 2002 to 2007
5-star
Deluxe
5-star
4-star
Budget
did not see any significant addition to the
room stock in the city of Kolkata. Besides, no
Minimum Maximum supply addition is expected for the next year
Source: Knight Frank Research as well. This has led to an increase in the
demand-supply gap, allowing most of the
Budget Hotels hotels in Kolkata to run at higher occupancy
In Kolkata, most of the budget hotels levels. However, with majority of supply being
generate a major proportion of revenue added in 2010 and 2012, the occupancies are
through corporate travellers visiting the city. expected to come under pressure. Further,
Generally, these hotels have a clientele base the ARRs are also estimated to stabilise due
of executives from the pharmaceutical sector, to competitive supply in the market.
manufacturing, telecom industry as well as
Besides the supply in the pipeline, a number
the IT/ITES sector. Many of these hotels also
of factors are responsible for the projected
have tie-ups with travel portals for getting
low occupancy rates and ARRs. The global
customers. Besides, as the city boasts of the
economic slowdown has led the hotel
only international airport in the region, there
industry to a slump. Meanwhile, the
are a large number of tourists who visit the
controversy over the Tata Nano plant at
city for transit purpose. In the past, these
Singur, which ultimately saw the Tatas
hotels played host to a large number of
pulling out of the state, has created
Bangaldeshi tourists, who would visit the city
downbeat sentiments towards Kolkata as an
to avail of medical services or to attend
investor-friendly region. Another factor
weddings of relations in the city. However, of
dampening the Kolkata hotel market has
late, due to security threats, this trend has
been the terror attacks on Mumbai, which
reduced to some extent. Besides, the
have reduced the projected number of foreign
percentage contribution from the leisure
tourists arriving in the country.
segment has been declining over the years,
from around 15% in 2005 to an average of 8% All these factors notwithstanding, the hotel
in 2007. industry in Kolkata can still look forward to a
positive market scenario with majority of the
At present, the budget hotels have ARR
developers going ahead with their hotel
values in the range of Rs.2,860-3,200 and
projects. By the end of 2012, the Kolkata hotel
enjoys an occupancy rate of around 77%
market shall boast of a number of
during the off-peak season and around 83%
international hotel brands in the city.
during the peak season of Oct-Feb. While the
economic recession has impacted the
www.knightfrank.com

Mumbai
Besides financial and port related activities, ARRs have declined on an average by 5-10%
it is also the primary centre for the art and in South Mumbai and 10-15% in North
entertainment industries. Mumbai during the period May-Sept 2008.
Figure 11
The reason for the difference between the two
Movement in ARR (5D,5,4-star Hotels) Over the last few years, developments like
regions is that South Mumbai, due to its
10,000 the widening of the Mumbai-Pune highway
relatively more saturated demand, is
and expansion of the IT/ITES sector in the city
expected to exhibit greater resistance to
has infused optimism to the Mumbai real
8,000 declining rates. Due to a sharp increase in
estate market. This, in turn, triggered
operating costs, the 5-star Deluxe and 5-star
widespread developmental activities in this
6,000 hotels, with more voluminous operations, are
sector. Although the city comprises the Island
under severe pressure to lower rates in order
Rs.

City, Western Suburbs, Central Suburbs, Navi

to support occupancy in the face of reduced
4,000
Mumbai and Thane, the hotel industry can be
demand. 4-star and budget hotels are better
distinctly divided into two districts, viz.,
placed to wait and see how the market
2,000 North Mumbai and South Mumbai, based on
shapes up in the coming months before
the business mix. While the hotels in North
being forced to adjust their rates.
0 Mumbai, especially those in proximity to the
airport, mainly cater to the corporate
2008
2004

2006
2005
2003

2007

5-star Deluxe and 5-star Hotels

Q3

travellers (88-90%) and airline crew (8-10%),

Source: Knight Frank Research North Mumbai has a larger concentration of
hotels in South Mumbai have a mix of leisure
hotels in the 5-star Deluxe and 5-star
Figure 12 (20%) and business (80%) travellers.
categories with a total of 16 hotels and an
Occupancy Rate (5D,5,4-star Hotels)
inventory of around 4,321 rooms. The region
78 Current Scenario comprises the majority of the hotel room
76 Currently, Mumbai houses 74 government stock, to the tune of around 68%, with the
74 approved hotels across all categories with a rest located in South Mumbai. These hotels
total count of 9,503 rooms. In terms of the witnessed an average occupancy of 75% in
72
boom experienced by the hospitality industry, FY 2006-07 and this rose to around 78% in
Percent(%)

70
particularly during the last year, this might FY 2007-08. However, occupancy levels
68 have been viewed as a supply shortage. across these hotels have seen a drop of
66 However, due to the current global economic around 13% during May-Sept 2008. This can
crisis, the sector across the board is facing a be largely attributed to the slowdown in the
64
turbulent phase. Leisure and business travel, global markets given the fact that business
62
particularly that emanating from the financial travellers contribute the largest percentage
60 share of clientele across these categories of
sector, has reduced on account of a general
2008
2004

2006
2005
2003

2007

Q3

liquidity crunch and exorbitant airline fares hotels in Mumbai.

Source: Knight Frank Research resulting from a hike in fuel surcharges.

Overview
Mumbai, the financial capital of India and the
state capital of Maharashtra is one of the
fastest growing metros in the country. The
Reserve Bank of India, the two most active
stock exchanges in the country viz. National
Stock Exchange and Bombay Stock
Exchange, the Securities and Exchange Board
of India (SEBI) and numerous national and
international financial service providers have
their headquarters in Mumbai. Taj Mahal, Mumbai

11
Q4 2008
INDIA
HOTEL
Review

While the ARR in North Mumbai hotels was
Rs.7,416 in FY 2006-07, these hotels
witnessed ARR in the range of Rs.8,000-
13,000 in FY 2007-08. With ARR figures
dropping by around 5% till September 2008,
the Revpar has also been reducing
substantially in the past 5 months.
There are total 6 hotels in South Mumbai in
the 5-star Deluxe and 5-star category with an
inventory of approximately 2,015 rooms.
These hotels have also been impacted by the
economic slowdown and have recorded
average occupancy level of 60% during the
period of May-Sept indicating a drop of
around 10% as compared to an occupancy
level of 70% witnessed in FY 2007-08. The
These projects will comprise adding 202 and
436 rooms respectively. In all, approximately
5,078 rooms are estimated to come up in the
5-star Deluxe and 5-star categories by
end-2012.
Most hoteliers were sceptical about reaching
the budget targets that were set in 2007 as it
did not predict the global downturn and
hence were largely overestimated based on
the previous year's performance. While hotels
were awaiting occupancy level results over
the next two months which would be the
typical peak season in the industry in order to
estimate whether they would be able to meet
their targets or resort to decrease room rates,
the recent attacks on the city have forced Trident and Oberoi Mumbai

South Mumbai hotels achieved an annual
ARR in the range of Rs.9,600-14,700 in
FY 2007-08. This signifies an increase of
around 20% in comparison to FY 2006-07
when the reported ARRs ranged between
Rs.7,339-10,652. These hotels have
witnessed a drop in ARR of around 6% till
September 2008.
Two notable hotel projects in 2008 include
the Four Seasons at Worli, which became
operational early this year and Trident at BKC,
which is expected to be completed by the end
of the year.
Figure 13
Category-wise ARR
20,000
hoteliers to reduce their tariffs by 15-20%.
Many of the hotels are now looking for
various cost cutting strategies and ARRs are
expected to reduce further by around 10-15%
over the next few months.
4-star Hotels
Of the 14 operational 4-star hotels in Mumbai,
13 are distributed between South Mumbai
and Juhu/Vile Parle in North Mumbai. The
existing inventory of 4-star hotels in Mumbai
is 1,191 rooms, which accounts for 15.4% of
total room inventory across the 5-star deluxe,
5-star and 4-star categories. Approximately
692 new rooms will be added to the total
supply of 4-star rooms in Mumbai by the end
of 2012.
the level of corporate demand catered to. The
level of discounts in general could witness a
rise as hotels look to buffer demand without
having to slash rates.
Hotels in this category cater more to domestic
demand with 59.5% of total demand
accounted for by domestic travellers and
40.5% by foreign travellers. Within the
aforementioned mix, leisure travel owes more
to foreign travellers who on average account
for 55% of total leisure demand in the 4-star
category, whereas 75% of total business
travel is accounted for by domestic business
travellers as the foreign business travellers
prefer the higher-end 5-star and 5-star Deluxe
hotels.

The ARR in this category, which during the

FY 2006-07 hotel industry boom rose to
Approximately
15,000
Rs.5,870 from Rs.5,036 in FY 2005-06, has
692 new rooms
risen further during FY 2007-08 to Rs.6,274.
This reflects the fact that 4-star hotels are will be added
Rs.

10,000

facing relatively less pressure to ease their

5,000
rates when compared to the 5-star category. to the total
In fact, most have pressed ahead with their
scheduled rate increase this October. supply of 4-
However, occupancy rate, which averaged
0
86.6% in FY 2006-07 from 82% in 2005-06, star rooms in
Budget
5-star
Deluxe

5-star

4-star

has declined during FY 2007-08 to 77.2%.

Corporate discounts are prevalent at these Mumbai by the
Minimum Maximum hotels and range from 10-50% depending on
Source: Knight Frank Research end of 2012.

12
www.knightfrank.com
The total revenue in these hotels is primarily
accounted for by Room and F&B, with the
former constituting around 70% and the latter
30% of total revenue. Those hotels that are
providing facilities such as nightclubs
(examples being The Gordon House Hotel in
Colaba and Ramee Guestline Juhu) and
health clubs also snare a share of total
revenue through the same.
Budget Hotels
Budget hotels in Mumbai are more evenly
distributed around the city. Besides the
South Mumbai locations, a good number of
hotels in this category are located in areas
such as Juhu, Andheri, Bandra, Khar,
Navi Mumbai and Powai.
The ARR in this category, which during the
FY 2006-07 hotel industry boom rose to
Rs.4,360 from Rs.4,100 in FY 2005-06, has
dropped during FY 2007-08 to Rs.4,260.
Occupancy, which during FY 2006-07
averaged 85.98%, up from 82.30% in
FY 2005-06, has declined during FY 2007-08
to 76.10%. The significant difference here
when compared to the 4-star scenario is that
in the face of declining occupancies, 4-star
hotels have the financial cushion to support
their rates, whereas most budget hotels do
not, and hence have slightly reduced their
rates. Corporate discounts offered in this
category range from 10-30%, which reflect the
fact that corporate demand at budget hotels
is more sporadic than voluminous.
JW Marriott, Mumbai
The budget hotels cater primarily to domestic
demand. Approximately 67.6% of the total
demand across all these hotels is accounted
for by domestic travellers and 32.3% by
foreign travellers. The difference in demand
can be attributed to the fact that these hotels
predominantly represent domestic brands.
Around 67.6%
of the total
demand in
budget hotels
is accounted
for by
domestic
travellers and
32.3% by foreign
travellers.
On an average, 78.3% of revenue for hotels in
the budget category is accounted for by the
room rents and 21.7% is generated from F&B
activities. Approximately 322 new rooms will
be added to the total supply of budget hotels
in Mumbai by the end of 2012.
Outlook
The recent terrorist attacks in Mumbai city
coupled with the ripple effects of the
slowdown in the global economy will severely
impact hotels across all categories with the
premium segment taking the maximum hit
over the next year. Most hotels are canceling
or down-scaling their New Year's parties
which further decreases revenue generation.
While in September 2008, occupancy levels
in South Mumbai were already considerably
low, the recent developments have amplified
the pressure on these hotels. The North
Mumbai hotels, however, will be less affected
due to their proximity to the airport. While
many Mumbai hotels have reduced tariffs by
15-20% to sustain demand, a further decrease
of 10-15% is expected over the next 3-4
months.
On a positive note, various infrastructure
projects like the Bandra-Worli sea link, Metro
Rail and Nhava-Seva sea link are expected to
enhance connectivity, thereby supplementing
hospitality growth along these corridors in
the long run. Also, the development of the
new airport at Navi Mumbai is expected to
increase hotel demand in the contiguous
micro-markets. A total supply of 5,989 hotel
rooms is expected to be added across the
5-star Deluxe, 5-star, 4-star and budget
categories in Mumbai by the end of 2012,
although what materialises will depend
largely on the duration of the lean patch the
industry is currently going through. At this
juncture, certain Mumbai hoteliers are
contemplating changing the use of land
purchased for hospitality expansion to
commercial use.
13
Q4 2008
INDIA
HOTEL
Review

PUNE destination, a factor which has had a direct

positive bearing on the city's hotel industry.
Another notable project in this category is
Gordon House located on Ganeshkind Road
and which is the only Boutique hotel in the
Figure 14
Current Scenario city. Though these two categories account for
Movement in ARR (5D,5,4-star Hotels)
40% of the existing stock across the 5-star
9,000 The potential of this fast developing city and Deluxe, 5-star and 4-star hotels, they cater to
its hotel market has attracted a number of nearly 85% of business travellers and foreign
8,000
major chains. International players like tourists.
7,000
JW Marriott, Hyatt and Starwood are coming
6,000 up with premium hotel properties in the city The average occupancy in FY 2006-07 was
5,000 in the next two to three years. around 88%, hotels recorded occupancy of
Rs.

4,000
92% in FY 2007-08. While the occupancy
During the current financial year, the IT levels of these hotels witnessed a marginal
3,000 operations in India have faced a major increase in 2007, during the first and second
2,000 setback due to the global economic crisis. quarter of 2008, there was a dip of around
1,000
Most of the IT firms, as a cost cutting 9%. This can be largely attributed to the
strategy, have slimmed down their travel slowdown in the IT/ITES sector, which is one
0
plans and training activities, and this has of the primary drivers of demand among the
2008
2004

2006
2005
2003

2007

Q3

reduced the occupancy levels of the hotels in
Source: Knight Frank Research Pune relative to last year.
Figure 15 5-star Deluxe and 5-star Hotels
Occupancy Rate (5D,5,4-star Hotels) There are only two 5-star Deluxe and four
100 5-star hotels in the city of Pune. Since Pune
exhibits a radial development, most of these
80 hotels are located in the Central and North
East Zones of the city where development
was initially concentrated. The two 5-star
60
Percent(%)
business segment. While the ARR across all
categories in the city has increased
significantly over the past few years, the
premium hotels witnessed a marginal
increase of 4.12% from FY 2006-07 to
FY 2007-08 with ARR in the range of
Rs.6,800-9,300. Due to the decrease in
occupancy levels, ARRs are expected to
remain stable, if not reduce over the next
year.

Deluxe properties viz. Le Meridian, located at

Many hotel brands like Leela, JW Marriot,
Raja Bahadur Mill Road, and Sun n Sands
40 Radissons, Sheraton, etc. are expected to
located in Bund Garden, contribute an
enter the Pune market over the forthcoming
inventory of around 314 rooms. At present,
20 3-4 years. Approximately 4,275 rooms are
there are a total of 353 rooms in the 5-star
estimated to become operational by end-
category. Noteworthy amongst them is the
2012, accounting for almost 67% of the new
0 O Hotel located in Koregaon Park by
supply in the premium category.
2008
2004

2006
2005
2003

2007

Starwood that became operational in

Q3

mid-2008.
Source: Knight Frank Research

Overview
The emergence of IT/ITES sector in the city of
Pune and its consequent boom has
contributed extensively to the growth of the
city's hospitality sector. With the entry of
many reputed Indian and global software
players since 2000, the city has experienced
an annual increase in foreign and domestic
corporate/business travellers in the range of
12-15%. As a result, Pune has recently gained
Le Meridien, Pune
immense importance as a business tourist

14
www.knightfrank.com
Of the total new supply, the North Eastern
and the Central Zones will infuse the
maximum quantum in the 5-star Deluxe and
5-star categories. The heritage hotel at
Saswad built by Orchid group also became
operational in 2008. Two notable upcoming
projects include 'Marriott Courtyard' and
'Gateway Taj' at Hinjewadi.
4-star Hotels
Pune has 16 hotels in the 4-star category with
a total inventory contribution of about 987
rooms. The Central Zone accounts for around
51% of the total stock in this category across
the city. The clientele base in these hotels
constitutes both domestic and foreign
business travellers as well as foreign leisure
travellers. However, the number of business
travellers and foreign leisure travellers has
reduced in 2008 owing to the global
economic slowdown. The reduction in the
occupancy rates could also be attributed to
the fact that many of the budget hotels have
started upgrading their services to compete
with the higher category hotels.
ARRs across the 4-star hotels have remained
relatively stable over the past year recording
an ARR in the range of Rs.4,000-7,700 in
FY 2007-08. However, while occupancy levels
increased on an average from around 85% in
FY 2006-07 to 91% in FY 2007-08, the year
2008 has witnessed a decline in occupancies
over the past two quarters.
In total, around 2,113 rooms are expected to
be infused into the Pune hotel market over
the next 3-4 years. While the North Eastern
Zone will contribute 46% of the new supply,
the Central and North Western Zones will
account for 35% and 19% of the supply
respectively. The significant developments in
this category of hotels include Dawnay Day
Hotels India at Nagar Road and St.Lauren at
Mundhwa.
Budget Hotels
This category of hotel caters to most of the
domestic business travellers from
Figure 16
Category-wise ARR
10,000
8,000
6,000
Rs.
4,000
2,000
0
5-star
Deluxe
5-star
4-star
Budget
St. Lauren, Pune
Minimum Maximum
Source: Knight Frank Research
Outlook
engineering and ancillary services aside from
At present, there are around 35 hotels and 8
the IT/ITES sector which is the predominant
serviced apartment projects operating in
sector of Pune. Of the total number of budget
Pune across all categories. For close to
hotels in the city, 66% of the current stock is
around a decade, no new hotel brands
located in the Central Zone. With
entered Pune. In a significant turn of events,
improvements in the city's economic scale,
since the last year, close to 25-30 new hotels
this category of hotels has observed a steady
and serviced apartments encompassing all
growth over the past two years. The average
categories have set up or announced plans of
occupancy rate across this section was
setting up in Pune. More than 50% of the
around 70% in FY 2007-08, with ARR in the
upcoming properties in Pune are 5-star
range of Rs.2,500-3,500. While the premium
properties, the rest being 4-star, budget
segment of hotels witnessed a marginal
hotels and serviced apartments. The Eastern
increase in ARRs, the budget hotels
suburb of Pune is expected to see a number
witnessed a significant increase where the
of major hotel groups setting up their
maximum ARR was recorded in the first
projects. LAVASA, an upcoming mega
quarter.
township, has plans of setting up a 250 room
Around 7 new hotel projects are expected to 4-star Novotel spa resort by 2012.
be operational by end-2012, adding
Pune, with its growing IT/ITES sector,
approximately 869 rooms to the current
biotechnology parks, automobile and
stock. This supply will be evenly distributed
manufacturing units, along with improved
in the three main zones, with the North
international air connectivity and readily
Eastern, Central and North Western Zones
available manpower is expected to have a
contributing 33%, 42% and 25% respectively.
positive effect on all the real estate sectors
The two notable projects in this category
including the hospitality sector in the long
include those by IBIS in Viman Nagar and
run. Also, due to the increase in number of
Hotel Surya Pvt. Ltd. in Baner.
expatriate professionals as well as long-stay
business travellers, the potential of the
serviced apartments market has greatly
increased over the years.
15
Q4 2008
INDIA
HOTEL
Review

GOA Given its strategic linkages by rail and road to

the rest of India, Goa occupies a prominent
position as India's premier iron-ore exporting
has been steadily reducing in the past two
years. While the number of chartered flights
to Goa increased by 29% in FY 2004-05, the
Figure 17
port as well. year FY 2005-06 witnessed an increase of just
Movement in ARR (5D,5,4-star Hotels)
4% in comparison to the previous year. This
7,000 The state of Goa comprises of 11 talukas but
number reduced further and in FY 2007-08
for administrative purpose, it is divided into
only 710 flights came to Goa. Traditionally the
6,000
two districts, viz., North Goa and South Goa
city had two major seasons, Peak and off
with its headquarters in Panjim and Margao
5,000 Peak which extended from Oct- April and
respectively. According to the 2001 census,
May-Sept respectively. With the reduction in
4,000 the population density in North Goa was
the number of chartered flights, the hotel
Rs.

437 per sq. km. while that of the South Goa

3,000 sector in Goa focused more on the domestic
was 324 per sq. km. Enhanced infrastructure
traveller. This led to the emergence of three
2,000 development and greater frequency of
distinct seasons post 2006. Season 1 is the
tourists led to early commercialisation of
1,000 lean period from the end of May-Sept, where
North Goa, while South Goa has experienced
hotels focus on the domestic market and
0 gradual and regulated developments.
promote monsoon packages. Season 2
2008
2004

2006
2005
2003

2007

Q3

extends from Oct-Nov and Feb-May which

The development control regulations
caters to the charter segment as well as
Source: Knight Frank Research encouraged the growth of the hospitality
domestic tourists and is considered the peak
segment and restricted any other type of real
Figure 18 season. The months of Dec-Jan are Season 3,
estate development along the coastline. This
Occupancy Rate (5D,5,4-star Hotels) which is now classified as peak-peak season
has led to the entry of major hospitality
where almost all hotels earn their maximum
80 brands like Taj, The Leela, The Marriot,
revenues especially from the 23rd Dec to
Intercontinental etc. along prime stretches of
2nd Jan.
Vainguinim, Miramar, Sinquerim, Candolim,
60
Calangute, Baga, etc. in the north and
Arossim, Majorda, Varca, Raj Baga Beach,
5-star Deluxe and 5-star Hotels
Percent(%)

etc. in the south. Five years back, North Goa was considered to
40
be the prime location for most of the foreign

Current Scenario and domestic tourists. However, with the

20 development of a number of 5-star Deluxe
The hotel industry in Goa has grown hotels, South Goa with its virgin beaches has
extensively over the past three years. While become a sought after destination for foreign
0 charters comprised the majority of clientele tourists as well.
during the season of Oct- March, this trend
2008
2004

2006
2005
2003

2007

Q3

Source: Knight Frank Research

Overview
Goa has emerged as one of the leading
tourist attractions in India because of its
attractive beach destinations. With a 105 km
coast line of scenic beaches of varying
length, one of the main sources of revenue is
tourism. Besides this, sectors like mining,
shipping and fishing are also some of the key
economic drivers of Goa.

Intercontinental The Grand, Goa

16
www.knightfrank.com
Of the total twelve 5-star Deluxe properties in
Goa, seven of them are located in the south
and comprises an inventory of around 1,818
rooms.
With a contribution of around 747 rooms in
the 5-star category, the premium segment
accounts for a total of approximately 2,565
rooms. Most of the hotels include various
facilities like specialty restaurants, water
sports, gymnasiums, casinos and a mini-golf
course.
While the foreign tourists market is still
responsible for a large share of the revenue
generated in the premium segment, hotels
have now adapted their strategy and in the
past year have been focusing on corporate
and the HNIs of the Indian market. Promotion
of corporate offsites, conferences and even
beach side weddings contribute a significant
amount to the revenue generated. The year
FY 2007-08 witnessed an increase of around
10.25% in the ARR among the 5-star Deluxe
and 5-star hotels in comparison to the
previous year. The ARR during the various
seasons ranged from around Rs.5,000-6,000
in the lean season to Rs.6,000-9,000 in the
peak season and Rs.12,000-15,000 in the
peak-peak season. However, the year 2008 is
currently witnessing a slow down in the
Figure 19
Category-wise ARR
20,000
15,000
Rs.
10,000
5,000
0
Budget
5-star
Deluxe
5-star
4-star
Minimum Maximum
Source: Knight Frank Research
market since June. ARR values till September
across these segments were around
Rs.4,000-5,000. Occupancy levels in these
premium category hotels have dropped to
around 45% in comparison to the year 2007
which recorded an average occupancy of
65-70% during the months of Aug-Nov.
While the revenue contribution of F&B in the
north is around 15-20%, most hotels in the
south recorded an F&B contribution of around
25-35% and a cover capture ratio of around
75-80% among the charter segment during
FY 2007-08. Approximately 2,490 rooms are
expected to be infused into the Goa market
by the end of 2012. A notable project includes
that by the Taj group which will be coming up
with a hotel in Panjim City.
4-star Hotels
There are a total of 253 rooms in the 4-star
category. While the ARR in the 4-star category
ranged between Rs.4,800-5,500 for the year
FY 2007-08, this segment recorded a reduced
ARR of Rs.3,500-4,200 since August 2008.
These hotels recorded occupancy levels of
75-80% in FY 2007-08. However, occupancy
levels in these hotels have also reduced
considerably over the past 6-7 months,
dropping to around 56% in the 4-star
categories since August 08. Domestic
tourists constitute 65% of the total tourists in
these hotels and hence this may be one of
the reasons why the hotels have not been as
badly affected as the other premier hotels.
Approximately 550 new rooms are expected
to be added to the total 4-star category stock
by end-2012.
Budget Hotels
The budget category of hotels is increasingly
gaining prominence among the leisure as
well as business travellers. Occupancy levels
in the budget hotels were in the range of
56-62% in FY 2007-08. While the premium
segment hotels are witnessing a significant
drop in occupancy levels, most of the budget
hotels have recorded 10-20% drop in
demand. Though the city hotels witnessed
only a 10-12% dip in occupancy, properties on
the beach front saw a 15-20% decrease.
The city hotels are still witnessing a demand
from the corporate travellers and domestic
tourists but the duration of their stay has
reduced. The ARR in these hotels ranged
between Rs.2,100-3,000 in FY 2007-08, with
hotels in Panjim city recording the highest
values. Currently the ARR has dropped by
around 5.5% across the budget hotels.
Around 450 rooms are expected to be added
to this category by end-2012.
Outlook
While Goa continues to be a preferred
destination among global travellers, many
newer destinations like Malaysia and
Singapore are offering attractive holiday
packages as well. Besides this, Goa had
already witnessed a slowdown in September
2008 due to the global crisis and reported
untoward incidents arousing safety concerns
among foreign tourists. While the hotel
industry was waiting see whether the markets
would pick up in Nov-Dec, the recent attacks
on Mumbai have only led to a further slump in
the market, especially among the premium
category segment. However, some hoteliers
are still optimistic that new year parties in
Goa will attract a larger number of domestic
tourists due to the packages offered.
To attract the global market, various other
avenues need to be explored in addition to
improving the infrastructure facilities of the
southern part of the state. Given the fact that
Goa has world heritage architecture and rich
flora-fauna, as well as potential for eco and
medical tourism, it could be promoted to not
only the foreign market, but the domestic
segment as well.
While many of the upcoming hotels may
benefit by business brought in by the 2010
common wealth games, sustainability would
be a primary concern in the long run. Many
developers are already reconsidering plans of
hotel projects, due to the current crisis and
slowdown across the market.
17
Q4 2008
INDIA
HOTEL
Review

BEngalUrU
Most of the prominent developers in the city
like Brigade, Adarsh, Sobha, Nitesh and
Prestige have entered the hotel market
Figure 20 through joint ventures with domestic and
Movement in ARR (5D,5,4-star Hotels) international brands to develop hotels in the
16,000 premium and business categories. The city is
experiencing an influx of international brands
14,000
like Hilton, Shangri-La, Marriott, Ritz Carlton
12,000 and West Inn to name a few. Most of the
10,000 upcoming hotels are part of the integrated
townships as it minimises the risk involved in
Rs.
now been delayed due to the high land costs
and construction costs. Hoteliers and
developers have acquired huge land parcels
on the Bellary Road in proximity to the new
International Airport, as a result of which this
region has a number of projects in the
pipeline.
5-star Deluxe and 5-star Hotels
The city has currently 2,212 rooms in the
5-star Deluxe and 5-star categories. Currently,

8,000
the project. Another notable segment in the the premium category hotels have ARR in the
6,000 hospitality sector is the serviced apartments range of Rs.10,000 to Rs.18,000.However, the
4,000
sector, which has been coming up across all average occupancy over the year is 67%
quadrants in the city. which reflects a dip of around 8% compared
2,000
to last year.
The State Government is taking initiatives to
0
improve the infrastructure and promote the Among the existing hotels, Leela Palace
2008
2004

2006
2005
2003

2007

Q3

city as a hub to tourist destinations. Until
Source: Knight Frank Research now, the hotels were primarily concentrated
in the city centre and its surroundings.
Figure 21 However, the upcoming hotels are
Occupancy Rate (5D,5,4-star Hotels) concentrically spread towards the peripheral
100 locations of the city. Locations like
Whitefield, Bellary Road and Hosur Road have
80
huge hotel developments in the premium
segment which would be operational in the
next two years.
60
Percent(%)
increased its room inventory to 352 rooms,
while the Park and Royal Orchid have been
upgraded to the 5-star category. The city will
have an additional supply of 3,359 rooms in
the premium category by 2010. Imminent
international brands under construction in
the city centre include the Shangri-La,
Ritz Carlton, Marriott and Hilton scheduled to
be operational by 2009-10. Among the
domestic brands, ITC Group is coming up with

the ITC Gardenia at Lavelle Road with Prestige

40
Current Scenario developers.

The city has a total inventory of 3,823 rooms
20 across all hotel categories. The city is
expected to have a total supply of 5,800
rooms in the next three years. Many hotel
0
projects which had been announced in the
2008
2004
In the peripheral locations of the city,
international brands include the Shangri-La
at the Sarjapur Outer Ring Road and the
Radisson at Whitefield in the 5-star category
which would be due for operation in the next

2006
2005
2003

2007

Q3

last one year by prominent hotel groups have year.

Source: Knight Frank Research

Overview
Bengaluru, the intellectual capital of India
with its diversified culture and cosmopolitan
populace continues to be in the focus of
international investors, developers, retail
brands and educational institutions. A
significant event in 2008 was the opening of
the Bengaluru International Airport which is
projected to enhance the global position of
the city in terms of foreign investments, wider
The Lalit Ashok, Bengaluru
opportunities and foreign tourist inflow.

18
www.knightfrank.com
4-star Hotels
Bengaluru, being a predominant business
destination witnessed an increase in the
number of 4-star hotels in 2008.This segment
has an existing room inventory of 1,611 which
includes the five new hotels opened this year.
The 4-star hotels in the city registered an ARR
in the range of Rs.5,400-7,500 with an
average occupancy of 70% over the year. The
cost cutting in the IT/ITES companies has had
a severe impact on the business travellers to
the city. Increase in flight costs and reduction
in the number of domestic flights has also
decreased the flow of domestic travellers to
the city.
Some of the prominent new hotels
operational in 2008 include the Taj Vivanta at
Whitefield Fortune, JP Cosmos at Cunningham
Road and The Royal Orchid's, Ramada near
Shivaji Nagar. In the east, the Savannah
Sarovar Premiere and the Fortune Select
Trinity started their operations at Whitefield.
These hotels added 626 rooms in 2008 in the
business category.
Major international brands foraying into this
segment are the West Inn at Hebbal,
Shangri-La Traders hotel at Whitefield and
the Renaissance at Bannerghatta Road.
Domestic players in hospitality industry are
also expanding their presence in the city
which includes the Trident at the
International Airport, the Taj Group coming up
with a hotel at Yeswanthpur and Lemon Tree
at St. Johns Road. There would be a total
supply of 1,587 rooms in the next three years.
Budget Hotels
The decrease in flow of domestic tourists to
city has had a significant impact on this
sector as well. Most budget category hotels in
the city centre recorded an average
occupancy of 60%. This is primarily due to
the presence of serviced apartments in the
vicinity, which offer competitive rates for long
stay durations. At present, these hotels have
an ARR of Rs.2,800. Hotels operational in the
last year include the Confident's Iris at
Figure 22
Category-wise ARR
20,000
15,000
Rs.
10,000
5,000
0
Budget
5-star
Deluxe
5-star
4-star
Fortune JP Cosmos, Bengaluru
Minimum Maximum
Source: Knight Frank Research
developments and serviced apartments
Brigade Road and the Radha Hometel at across all the micro-markets in the city. The
Whitefield. booming healthcare sector is likely to
promote medical tourism while heritage
tourism would also enhance the growth of the
Outlook
city as a transit hub. The state has already
Global recession has reduced the number of two world heritage sites and few more
foreign tourists visiting the city. The after- heritage sites are expected to be added in the
effects of the terror attacks at Mumbai led to near future.
a further slowdown in the hospitality sector.
Occupancy rates have decreased further by
15-25% towards the end of 2008, while hotels
across the city have reduced the tariff rates
by 35-50%. Most of the hotels have decided
to defer their Christmas and New Year
celebrations this year. On the other hand, The
F&B segment in the hotels have faced a
decline due to increase in the number of
stand-alone restaurants across the city. The
Aero Show scheduled in February is expected
to boost the occupancy in these hotels.
However, the city may not witness an
increase in the ARR levels and the occupancy
levels in comparison to the last two years.
Further, existing hotels are bound to face a
competition in the next two years due to the
upcoming supply in the market.
The city skyline is projected to change in the
next three years with the entry of
international brands, mixed use
19
Q4 2008
INDIA
HOTEL
Review

hyderabad Hyderabad Metropolitan Development

Authority (HMDA) which encompasses an
area of over 6,300 sq. kms with a population
the occupancy levels and ARRs among all
categories of hotels. However, the premium
hotels in the city have managed to maintain a
Figure 23
of 6 million. With this move, Hyderabad has steady occupancy level with a number of
Movement in ARR (5D,5,4-star Hotels)
become equivalent size-wise to the other conferencing and sporting events this year,
12,000 important metropolitan cities in the country. notable amongst them being the PATA
Conference, ICL and the India Aviation Meet
10,000 The city's growth has also led to the
which took place recently.
resurgence of the hotel industry. The
8,000 expansion of the IT/ITES sector, launching of
5-star Deluxe and 5-star Hotels
the new international airport at Shamshabad
Rs.

6,000 Coupled with strong commercial/ retail base,

and various other infrastructure initiatives by
high-end residential catchment and proximity
the government have resulted in an increased
4,000 to the old international airport, locations like
inflow of both tourism and business travel to
Secunderabad, Begumpet, Somajiguda and
2,000
the city. Apart from the IT/ITES sector, other
Banjara Hills witnessed a high concentration
major sectors like biotechnology,
of the hospitality sector catering to the
0 pharmaceutical and medical tourism have
demand. There are a total of about 37 hotels
also contributed to a strong growth in the
2008
2004

2006
2005

2007

Q3

in the city with an inventory of 3,949 rooms of

hospitality sector. In a significant step, Accor
Source: Knight Frank Research which there are eight hotels in the 5-star and
opened the largest convention centre in the
5-star Deluxe category contributing to 39% of
city in 2006, which propelled Hyderabad's
the existing total inventory. These hotels
status to that of a preferred destination for
Figure 24
cater to about 70% of the total business
meetings and conventions. Since then, there
Occupancy Rate (5D,5,4-star Hotels) travelers to the city. Majority of the 5-star
has been an annual increase of 12-14%
90 hotels are located in the CBD and Off-CBD
observed in foreign and domestic corporate
80 locations. The ITC Kakatiya and Fortune
travelers to the city.
Manohar are located at Begumpet while the
70
Taj Krishna, Taj Banjara and Taj Residency are
60 Current Scenario located at Banjara Hills. Other premium
Percent(%)

50 The current global economic situation and hotels include the Hyderabad Marriott
40 hike in the fuel surcharges creating an located at Tank Bund Road and the Novotel

30
adverse impact on the IT sector, led to a Hotel at Hitec-City.
decline in travel plans as well as major cost
20 A number of hoteliers have leveraged the
cutting by the companies. Besides these
10 advantages involved with the shift from the
challenges, the infusion of an additional 500
existing CBD to the new CBD (Madhapur and
0 rooms this year further increased pressure on
Gachibowi), as well as the development of
2008
2004

2006
2005

2007

Q3

Source: Knight Frank Research

Overview
Hyderabad, the capital city of Andhra
Pradesh, popularly known as 'The City of
Pearls' is one of the fastest growing
metropolitan cities in the country with a
growth rate of 32%. It is the 5th largest city in
India with its urban agglomeration
comprising the three cities of Hyderabad,
Secunderabad and Cyberabad. Recently, the
Government of Andhra Pradesh formed the Taj Krishna, Hyderabad

20
www.knightfrank.com
Outer Ring Road, which would result in
increased connectivity to the airport. The
latest entrants to the hotel market this year in
the premium segment have been Ista and Ella
Compass Suites, besides the Airport Hotel
launched by the Accor Group which is also
the first transit hotel near the Shamshabad
International Airport.
Out of the upcoming total supply of 8,142
room keys across all categories, the premium
segment would contribute a major share of
70%. Most of these developments are spread
across the new CBD and the peripheral
regions of Kukatpally, Shamirpet and Uppal.
These locations will add a supply of 3,572
keys in 13 hotels. The prominent hotels in the
pipeline include Westin, Hilton Garden Inn
and Aditya Sarovar Premier. Another notable
hotel project is being developed by the
Dubai-based Emaar Group. Also, the old CBD
had Taj coming up in Begumpet, Fairmont at
Ameerpet, Marriott Courtyard at Tank Bund,
the Park Hotel at Somajiguda and three other
hotels with a supply of 1,385 keys. Taj is also
launching a heritage hotel called Taj
Falaknuma at Old city which has connectivity
to the new international airport and targets
the high-end tourist populace to experience
the Nizam royalty. The Off-CBD at Banjara
Hills will add to 22% of the supply with the
presence of hotel chains like Hyatt, Leela and
Hilton.
The vibrant growth in the economy during FY
2005-07 resulted in substantial growth in the
hotel sector, which witnessed a growth rate
of 16% in occupancy levels, thereby leading
to 35% escalation in the room tariffs. Owing
to the demand-supply mismatch, the existing
hotels enjoyed occupancy rates and high as
82-85% and an ARR of Rs.8,102 in the
premium segment. However, additional
supply infusion of 500 rooms this year,
coupled with the slowdown in the market and
increasing inflation, have resulted in
occupancy rates to decline to about 65%,
while the ARRs have come down to Rs.6,674.
Figure 25
Category-wise ARR
12,000
10,000
8,000
Rs.
6,000
4,000
2,000
0 supply by 2012. the latest entrant to the
Budget
5-star
Deluxe
5-star
4-star
Minimum Maximum
Source: Knight Frank Research
4-star Hotels
There are about four 4-star hotels, including
the Green Park and Katriya Towers,
concentrated in the old CBD. The existing
inventory of the 4-star hotels is around 503
rooms contributing to 15% of the current
stock. The ARR in this category was in the
range of Rs.4,000-4,500 in the year 2007.
Owing to the market slowdown, there has
been a 5% decrease in the ARR this year,
compared to last year's values, which ranges
from Rs.3,800-4,250. The occupancy rates
have also shown a 5% decrease since the last
year and currently stand at 77%. The
upcoming supply in the 40-star category
contributes to around 814 room keys,
scheduled to be operational by 2012. The
prominent hotels in the pipeline in this
category include The Park at Somajiguda and
few other projects by independent players
like VA Hotels Pvt. Ltd at Banjara Hills.
Budget Hotels
There are several hotels in the budget
category which are concentrated in the old
CBD of Secunderabad, Begumpet and
Lakdikapul in proximity to the railway station
and major bus stations. With the commercial
base still intact in the old CBD, the budget
hotels cater to 75% of the business clientele
and pharmaceutical companies which are the
major feeders to this segment. The existing
inventory of the budget hotels is 1,905 keys,
contributing towards about 48% of the total
room inventory in the city. Compared to the 5-
star and 4-star hotels, the budget hotels
managed to maintain a steady ARR of
Rs.3,800 during the current year. However,
these hotels, too, have shown a decline in the
occupancy levels by 10% this year when
compared to 2007. The upcoming supply in
this category adds up to 21% out of the total
Hyderabad hotel market this year has been
the One Place Hotel at Kukatpally.
Outlook
With an upcoming supply of over 8,000
rooms by 2012 there is a possibility of an over
supply in the market. While on one hand, this
is likely to increase the level of competition
among the hotels, on the other hand, the
surge in supply is expected to reduce
occupancy levels and ARRs with most of
these hotels becoming operational in the
next few years. At present, many developers
who had planned projects are now
postponing construction activity due to the
slowdown in the market. Since the existing
hotels would have an advantage in the
market, the upcoming ones would need to
formulate a new stratagem to compete and
create a niche for them in the market.
With the recent terrorist attacks in Mumbai,
the hospitality industry in Hyderabad has
seen a considerable effect on its business.
There has been an incremental cancellation
of 15% seen in the week post the attacks and
a decrease of 10% in the occupancy rates. On
a positive note, the bookings for January
onwards have not been cancelled and
hopefully the situation can be reviewed
faavourably after the New Year's Eve.
21
Q4 2008
INDIA
HOTEL
Review

Chennai
commands over 16% share of India's total IT
exports which is indicative of not just local
talent retention but also the abilty to pull
Figure 26 skilled professionals from other parts of the
Movement in ARR (5D,5,4-star Hotels) country. This has had a positive effect on the
8,000 demand for quality hospitality services in the
city over the past couple of years.
7,000
developing as an attractive destination for
international tourists and upper-end
domestic leisure travellers. Premium hotels in
the location include Fisherman's Cove and
GRT Temple Bay.
Current Scenario

An important factor which has contributed to The Chennai hotel industry is expected to see
6,000
the growth of the hotel sector in the city is the a steady growth in terms of room supply
5,000
initiative by the government on development predominantly in the business traveller
of city infrastructure. Projects pertaining to segment. The rise in hospitality standards
Rs.

4,000

development of Metro Rail and an Outer Ring demanded in the city has led to the need of
3,000
Road are likley to decongest the city whereby properly managed and better organised
2,000 improving the connectivity. These hotels to increase their efficiency and provide
1,000 developments are expected to attract more better quality. Many of the Indian hotel
companies to set up their bases in the city groups are planning to come out with joint
0
and thereby adding to the demand for the venture hotel projects wherein their role
2008
2004

2006
2005
2003

2007

Q3

hotel sector in the long term. would be restricted to operations and the
Source: Knight Frank Research property would be given to them by the
The hotel industry in the city has traditionally
landowner on a long term lease. Chennai
Figure 27 been concentrated around the Central
attracts negligible leisure traffic annually, so
Occupancy Rate (5D,5,4-star Hotels) Business District (CBD) in the locations like
this segment does not contribute
Nungambakkam, Cathedral Road, T Nagar
80 significantly to the hotel room demand.
and Radhakrishnan Salai. These micro-
Currently there are 3,462 rooms available in
markets boasts of hotels such as ITC Hotel
75 the city with an additional supply of 3,726
Park Sheraton and Towers located at
rooms to come up in the next three years, a
70 TK Road, The Park and Courtyard Marriott at
cumulative growth of 24% from the present.
Anna Salai and Chola Sheraton at Cathedral
Percent(%)

The IT corridor of Chennai, i.e Rajiv Gandhi

65 Road. Although the CBD has been a
Salai, as well as erstwhile industrial locations
traditional base for hotels in the city,
in the city like Guindy, Ambattur and Padi,
60 currently it is the peripheral locations like
has a large catchment of IT/ITES companies
Rajiv Gandhi Salai, GST Road and Velachery
55
with a strong requirement for
which are witnessing strong developmental
boarding/lodging/conference which would
activity in the hotel sector. The East Coast
0 expectedly be responsible for captive
Road which runs parallel to the IT corridor
demand in these areas.
2008
2004

2006
2005
2003

2007

Q3

and which connects Pondicherry is

Source: Knight Frank Research

Overview
Chennai like other major metropolitan cites
has a strong presence of reputed hotel chains
with potential for further development. The
demand for quality hotels, over the past
couple of years, has been from the business
travellers segment. The growth witnessed in
this sector has been primarily as a
consequence of the strong presence of
IT/ITES industry. The city presently Rain Tree, Chennai

22
www.knightfrank.com
Thus, these locations have good potential for
becoming prime business hotel destinations
in the future.
5-star Deluxe and 5-star Hotels
In the premium category, which constitutes
the 5-star deluxe and 5-star segment, the city
has 11 hotels with an inventory of around
1,829 rooms. Around 65% of the premiere
clientele are business travellers and room
rentals are the key revenue earning segment,
constituting 64% of the total revenue. This
category has been relatively less affected by
correction in the market as they cater to high
profile clients who generally provide repeat
business. The current ARRs across this
segment is around Rs.8,350 with an average
occupancy level of 67%. The occupancy level
has shown a 2-3% dip as compared to the
same time period in the previous year.
Within the next 4 years 10-12 new hotel
projects in the premium category with
approximately 2,000 rooms is expected to be
launched in Chennai which will increase the
supply in this segment to about 3,753 rooms.
Few established groups like ITC Group of
hotels and the Taj Group of hotels are
planning to add more new properties in the
same city. Other groups like the Hilton group
of Hotels, JW Marriot Hotels, Bharat Hotels as
well as Sarovar's Hometel Hotels are in plans
of establishing their brand in the hospitality
segment in Chennai. Prominent projects
coming up in the city include ITC's The Grand
Chola Sheraton and The Leela Palace by Leela
Group.
4-star Hotels
Hotels in the 4-star segment constitute the
business class hotels in the city,
predominantly located in the CBD and Off-
CBD locations. Till a year back they were
witnessing steady growth fuelled by the rise
of the services sector, particularly IT/ITES. But
of late they have been witnessing a dip due
to market correction. Currently there are 11
hotels in this category with an inventory of
1,633 rooms and about 78% of this segment
Figure 28
This decline has created a level of uncertainty
Category-wise ARR which is expected to have a negative impact
10,500 on the hospitality industry in the city.
With more than 3,700 rooms to come up in
8,500
the next 3 years Chennai could witness an
oversupply in the hotel sector, as this will be
6,500
in sharp contrast to stagnant demand
Rs.
expected for the same. This aspect is
4,500 expected to put pressure on the room
occupancy rate post 2008. Due to this reason
2,500 majority of the hotels which are still in their
land acquisition and planning stage for their
future projects have stalled the
0
announcements of new projects. The 4-star
5-star
Deluxe
5-star
4-star
categories which predominantly service
Minimum Maximum
business clientele are expected to be
affected by this downturn in property prices,
Source: Knight Frank Research
with a major dip being expected in their
caters to business clientele. This segment is occupancy and revenue. This would signify
currently witnessing ARRs of Rs.5,500 with the establishment of a buyer's market in the
occupancy levels of 69.8%. hospitality sector resulting in hotels offering
competitive rates and attractive packages to
In the 4-star category a little over 1,700 rooms garner business.
are expected to come up in the next three
years but since a majority projects in this On a positive note the market correction
segment are at planning stage the timelines being witnessed can also be seen as an
for completion are not fixed and could be opportunity by land investors to invest in
delayed further. Prominent projects under property at values substantially lower than
construction include Hometel by the Sarovar that which it was being transacted over the
Group and Lemon Tree Hotel by the Lemon past couple of years. This could spawn a lot
Tree Group of hotels. of land acquisition for all major sectors
including hospitality.
Outlook
The strong economic growth witnessed in the
hotel sector in Chennai over the last couple of
years had resulted in a lot of projects being
announced over the past year, but the current
slowdown being witnessed in the property
market has resulted in a decline in price
levels. Added to this, the recent terror attacks
in Mumbai and threats to other metropolitan
cities including Chennai has led to a lot of
apprehension and concern in the hospitality
segment in the country. As a consequence of
this the hotel demand across all segments is
expected to drop drastically.
23
Q4 2008
INDIA
HOTEL
Review

KOCHI
Currently, this port city of Kerala is also a The concept of serviced apartments is slowly
growing centre of Information Technology, making its way into the market owing to the
finance, logistics, health services, ship increase in the period of stay of tourists in the
Figure 29 building and international trade and is thus city.
Movement in ARR (5D,5,4-star Hotels) regarded as one of the fastest growing Tier-II
4,500 cities in India. The economy of the city is Heritage Hotels
strong due to the presence of the Kochi port Heritage hotels have been increasingly
4,000
which plays a pivotal role in the exports finding favours in the city with developers
3,500
sector in the south. and hoteliers entering this segment to cash
3,000
in on the tourism potential. The Kerala
In the last two years, the city has witnessed a
2,500 Government had declared Fort Kochi,
huge growth in the real estate sector with the
Rs.

2,000 Mattanchery, Fort Vypeen and Willingdon

entry of national developers like DLF, Sahara,
Island as integrated heritage zones,
1,500 Purvankara and Sobha all of whom are
triggering a series of hotel developments in
1,000 coming up with massive projects along the
these locations over the past few years. The
Seaport-airport Road, Kakkanad and NH-47
500
hotels located here provide an ethnic
bypass locations in the peripheral locations
0 atmosphere with Ayurvedic and spa facilities
of the city. Demand for housing from the IT
2008
2004

2006
2005
2003

2007

with easy access to the traditional spice

Q3

sector and expatriates has made Kochi an

markets, the Jew Street and the beach front.
Source: Knight Frank Research
attractive investment destination.
Heritage hotels had an average occupancy of
Figure 30 65% over the year. Notably, DLF Group has
Current scenario purchased property belonging to Aspin Wall
Occupancy Rate (5D,5,4-star Hotels)
Kochi's hospitality sector continued to grow with a proposal to build a heritage hotel here.
72
steadily over the year. The city is witnessing a
70 shift from being a transit point and a leisure 5-star Deluxe and 5-star Hotels
destination to a business destination, as a Presently, the city has an inventory of
68
result of which the MICE segment is 580 rooms in the premium category.
becoming one of the major revenue
Percent(%)

66 Taj Malabar and Le Meridien are the only two

generators for hotels across the city. hotels in the 5-star Deluxe category. The
64
Ayurveda continues to fuel the growth of Le Meridien, with its huge banquet facilities,
62
medical tourism in Kerala. The Special caters to a significant proportion of the total
Heritage Zone at Fort Kochi continues to MICE segment in the city, while Taj Malabar at
60 increase its room inventory with a number of Fort Kochi is responsible for accommodating
old structures being converted into heritage 60% of the total tourists from the foreign
58
hotels over the years. leisure segment.
2008
2004

2006
2005
2003

2007

Q3

Source: Knight Frank Research

Overview
Kochi City, the headquarters of Ernakulam
district, is the hub of tourist activities in the
district and is a major tourist destination in
Southern India. The Cochin International
Airport has the fourth largest international
passenger traffic in India and serves as the
transit point for foreigners who travel to the
surrounding tourist destinations, namely
Alappuzha, Thrissur, Munnar and Thekkadi.
Bolgatty Palace, Kochi

24
www.knightfrank.com
The Trident was upgraded to a 5-star hotel in
this financial year. Hotels in this category
registered an 11% increase in ARR of over the
last year, with a current ARR of Rs.5,375 in
2008. The hotels in the premium segment
had an average occupancy of 54% over the
year.
An addition of 1,081 rooms in the premium
category is expected in the next two years. Of
the upcoming supply, note can be made of
the Le-Meridien adding another 150 rooms to
its existing property at Maradu. A number of
hotel projects are being developed along the
NH -47 Bypass, which can be primarily
attributed to land availability, its proximity to
the Infopark and in speculation of the
upcoming Smart City Project at Kakkanad.
Amongst other developments, the
Intercontinental Hotel Group made their foray
into the city with two projects, including a
Crowne Plaza hotel with KGA Group at
Maradu. Another project under construction
is a mall-hotel development by the Marriott
Group at the Lulu Mall Hotel at Vytilla
Junction. All these projects are in the
premium category and are estimated to be
completed in the next 2-3 years.
Figure 31
Category-wise ARR
7,000
6,000
5,000
4,000
Rs.
3,000
2,000
1,000
0 Group's second venture into the city is a
Budget
5-star
Deluxe
5-star
4-star
Minimum Maximum
Source: Knight Frank Research
Taj Malabar, Kochi
Hampshire is coming up with its second
property in India located at Elambakam. The
hotel will be operational by end-2009.
Other proposed hotels include the DLF-Hilton
Hotel at Marine Drive and the Gateway Hotel
of IHCL in a tie-up with the Muthoot Group.
4-star Hotels
Kochi has four hotels in the 4-star category
that are located at various nodes in the city
and comprise a total inventory of 275 rooms.
Of the total number of travellers to these
hotels, around 65% belong to the domestic
business class. Hotels in this category have
registered an average occupancy of 73% with
an ARR of Rs.2,350 (till Sept 2008).
This segment is projected to receive an
additional supply of 383 rooms by 2009-10.
This includes the expansion plans of
Gokulam Park Inn of Sarovar Group which is
adding another 40 rooms and banquet hall to
its existing property at Kaloor. Another hotel
mall development in the city is the Admiral
Plaza located at Palarivattom by BCG
Builders. Meanwhile, the Intercontinental
Holiday Inn brand with Indroyal Group
located on the NH-47 bypass.
Budget Hotels
The city has a substantial stock in the budget
segment that accommodates the domestic
travellers to the city. Most of these hotels in
the city are strategically located along the MG
Road stretch, the CBD of the city, due to
which hotels here have a comparatively
higher occupancy. Currently, these hotels are
recording an average occupancy rate of 75%.
The Abad Group has three of its budget
hotels operating in the city. The hotel group
also has an airport hotel in the vicinity of the
international airport to accommodate in-
transit travellers.
At present, the budget hotels of the city have
an ARR of Rs.1,975. An important upcoming
development in this segment includes the
Avenue Standard Hotel located at Panampilly
Nagar
Outlook
The tourism industry has been affected this
year due to the onset of the economic
recession across the globe. The international
ocean marathon- Volvo Ocean Race, made a
stopover in India for the first time this year at
Kochi. The event was held at the Cochin Port
during the first week of December, and was
expected to change the hospitality landscape
of the city with an expectation of more than
0.2 million tourists into the city. However, the
terror attacks at Mumbai further have reduced
the inbound foreign tourists this year. Owing
to this, hotels have reduced the tariff rates by
10-15% during the peak season (October to
February).
25
Q4 2008
INDIA
HOTEL
Review
SERVICED
APARTMENT
Serviced apartments are furnished apartment
units that provide temporary accommodation
characterised by a desirable blend of the
private comforts of a home and full-scale
amenities, a trait that makes this
accommodation type very conducive for
family life. Demand for serviced apartments
primarily entails foreign company executives
placed in India for specific assignments of
varying lengths, and more recently NRIs who
are relocating to India in progressively larger
numbers in the wake of the global financial
crisis. The spread of serviced apartments
across India comprises both budget and
high-end accommodation, an example of the
latter being the luxurious units in the
branded serviced apartments segment.
The concept of serviced apartments, although
only recently gaining momentum in India, has
been prevalent around the world for some
time now, particularly in regions with large
expatriate populations such as Hong Kong
and Australia. Developers in India, who until
recently have been cashing in on the
exorbitant growth of the hotel industry, are
now waking up to the need for serviced
apartments in India due to its sizeable
expatriate population.
A healthy proportion of serviced apartments'
demand comprises accommodation demand
emanating from the IT/ITES, KPO,
biotechnology and medical tourism sectors.
Bearing this in mind, developers might
exercise caution as these sectors would
certainly be adversely impacted by the global
financial crisis. In addition to this, the future
of the serviced apartments market in India is
linked to that of the hotel industry, as the
longer the current slowdown being
experienced by the latter persists, the more
inclined developers could become to explore
alternative forms of hospitality. Below is a
26
summary of the serviced apartments market
in select cities.
NCR
Serviced apartment is the latest addition to
the inventory of the NCR hospitality industry.
The concept of service apartment is relatively
new in the NCR market, with the Qutab hotel
and the Ramada Plaza being the properties to
recently initiate such services. Taking cue
from the concept of serviced apartments
which have enjoyed huge popularity in other
macro markets, big brands like the Marriott,
Oberoi's, Oakwood, Westin, Leela, Claridges
and Crowne Plaza are keenly looking to
launch such projects across the NCR market.
The Leela's Residency with an inventory of 90
rooms and The Marriott's executive
apartment with an inventory of about 170
rooms are examples of some upcoming
projects. The room inventory of the NCR
hospitality market is expected to increase by
more than 500 serviced apartment rooms, in
the forthcoming one year. Service apartments
are expected to clock a year-round occupancy
and an average stay of 2.5 to 3 weeks,
reflecting the high demand for such
developments.
Mumbai
There are five branded serviced apartments in
Mumbai, namely, Taj Wellington Mews,
Lakeside Chalet Marriott Executive
Apartments, Grand Hyatt Residences, Grand
Residences at the Intercontinental Hotel and
the apartments at Best Western called The
Emerald. Currently, the average revenue
amongst the high-end branded serviced
apartments is Rs. 15,670 per unit per night,
while the average occupancy is 72.6%.
Occupancy amongst the branded serviced
apartments in particular has been stable
largely due to the slow pace of transactions
and exclusivity of demand catered to. Going
forward, demand in this segment is expected
to be strong, as the profile of customers
primarily comprises corporate heads and
NRIs, the latter of which are relocating to
India in growing numbers in the wake of the
financial meltdown in the US and Europe. In
addition to this, the concept of serviced
apartments is still a fledgling one, and the
limited supply in Mumbai means there is little
downward pressure exerted on rates. The
major revenue generated from serviced
apartments is in the form of rent, which is
fixed at a daily rate, and food and beverage
consumed. The range and quality of
amenities offered determines other
components. Besides, as customers typically
move into these apartments with their
families, the range of amenities offered are
also targeted particularly to a family-oriented
lifestyle. The Grand Hyatt Residences, for
example, offers amenities ranging from a
jogging track and retail stores to special
entertainment programs for children.
Currently, there is huge potential for serviced
apartments to expand as a business in
Mumbai, given the size of the floating
population converging into the city. At
present, the branded serviced apartments'
category comprises 445 units. New projects
are in progress, a notable example being
Oakwood Apartments, a 62 room serviced
apartment project coming up in Juhu. The
coming year should witness the continued
growth of serviced apartments' presence in
Mumbai as the supply side becomes
increasingly responsive to the significant
potential for expansion of this concept.
Bengaluru
The advent of the IT/ITES sector into
Bengaluru and the consequent globalisation
led to the growth of the serviced apartment
sector in the city. Low supply and huge
demand for hotel rooms in Bengaluru led to
the hotels in the high-end luxury segment
charging as high as Rs.17,000 which led
corporates to look for an alternative
economic stay. The emergence of serviced
apartments came as a relief for companies
which are headquartered in Bengaluru, as
this provides a cost effective accommodation
for trainees and other employees travelling
www.knightfrank.com
into the city for a longer stay. Though most
serviced apartment owners target corporate
guests, there is also a requirement from
families regarding accommodation either for
a wedding or for availing the special
healthcare facilities in the city.
In Bengaluru, serviced apartments are usually
clustered within proximity of the prominent
office market locations in the city. Locations
such as Indiranagar and Koramangala are
still the preferred locations besides the
Central Business District areas as the
commutable distance is only 2-3 km.
However, with the growth of IT sector at
Whitefield, Sarjapur Outer Ring road, Inner
Ring Road and Electronic city, parallel to the
growth of the hotels, serviced apartments
developed across all these micro-markets.
Initially, developers who had a couple of
apartments vacant after selling the
residential flats, converted them into serviced
apartments as common amenities like
swimming pool, parking and security were
available at these premises. Foreseeing the
demand for this sector, developers have tied
up with hospitality players to come up with
serviced apartments with a number of
support facilities such as guest lounge,
swimming pool, health club, restaurant, etc.
Major players in this sector are the Chalet,
Brigade Homestead, Sterling Suites,
Mayflower and Oakwood residences.
Oakwood along with Prestige developers
started their operations at UB City in October
this year. Major upcoming developments
under international brands include the
Accors-Mercure homestead residences with
the Brigade Group at Koramangala, Hilton
Residences with the Embassy Group at the
Embassy Golf Links Park and the Shangri-La
with the Adarsh Group at the Sarjapur Outer
Ring Road. The room rates of serviced
apartments vary quite significantly based on
the location and duration of the stay. Top line
service providers like Oakwood have tariff
rates as high as Rs.7,000-10,000, while
middle-line providers charge between
Rs.4,000-6,000. There are also serviced
apartments with tariffs ranging between
Rs.1,500 for a single bedroom and Rs.3,000
plus per day for a three bedroom.
Hyderabad
The demand for the IT sector to provide
accommodation to their employees, shortage
of rooms coupled with high tariffs were some
of the primary reasons that led to the
development of serviced apartments in
Hyderabad. Given the increased demand,
many unbranded service apartments have
surfaced in locations such as Banjara hills,
Jubilee hills and Madhapur.
In total, there are more than 150 serviced
apartments and guest houses in the city with
an ARR of Rs.2,500. The average occupancy in
service apartments is around 95% of which
almost 40% comprises business travellers.
Currently due to a slowdown in the market,
many companies are opting for their own
guest houses or apartments resulting in the
closure of several small serviced apartments.
Further, the reduction in the rack rates in the
premier hotels is likely to impact this sector
in the near future. These apartments would
need to provide service on par with those of a
5-star or 4-star hotel in order to maintain a
high occupancy level. The two notable
upcoming serviced apartment projects are
that by Lanco City in Manikonda and Raheja
Mindspace in Hitec-City with 120 and 220
apartments respectively.
Chennai
Serviced apartments in Chennai are relatively
a new phenomenon and currently there are
only two reputed serviced apartment chains,
namely Star City and Blossoms, operational
in the city. The growth of this segment largely
depends on business that can be provided by
the IT/ITES sector. Geographically this
implies that the development of serviced
apartments would be in the southern and
western parts of the city which houses most
of the IT/ITES firms. Two factors have affected
the growth of serviced apartments in the city,
one being that 4-star hotels offer better
facilities for a marginal increase in price as
compared to serviced apartments. Secondly,
the fact that most of the major IT/ITES
companies have started to construct their
own apartments/ guest houses in order to
facilitate the accommodation need of their
employees have also deterred the growth of
serviced apartments in the city. The current
ARR, which is around Rs.2,200, and average
occupancy rate at approximately 50%,
stands testimony to low growth in this
segment.
Pune
The demand from the domestic long-stay
business travellers to Pune has greatly
increased over the years. This is evident from
the fact that most of the serviced apartments
in the city have occupancy levels as high as
85-88%. At present, there are 8 serviced
apartments operational in Pune with an
inventory of 391 rooms. The current ARR
values are in the range of about Rs.4,000-
Rs.6,000 depending on the services offered.
Amongst the key serviced apartment projects,
Royal Orchid Golden Suites is a 71 room
property of which around 30 rooms are
already operational. Seasons is another
serviced apartment project at Koregaon Park
with 23 rooms while Bel-Air in the same
location is a residential apartment-converted
into service apartments project. Around 7
serviced apartments are proposed with an
inventory of 987 rooms, scheduled to be
operational by the year 2012. Eastern Pune
has the maximum supply, to the tune of
about 400 rooms in 4 projects. After the
Seasons Apartments in Aundh, the Orchid
Group plans to launch its serviced apartment
project on Nagar Road. The Hyatt Group is
coming up with a serviced apartment
property along Nagar Road as well. Oakwood
will launch their second property in a year's
time at Koregaon Park Annex. Both these
properties are expected to be 5-star
properties.
27
Q4 2008
INDIA
HOTEL
RESEARCH
Review

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