The top-13 cities are expected to add 31,519 rooms by 2021 over its base of 84,396 rooms as of March 2016 (Illustration: Manali Ghosh)
In line with the slowdown in the pace of growth of the economy, the hotel industry has also witnessed a decline in pace of addition of branded hotel room inventory over the past few years. According to data collated by CARE Ratings, while the inventory for branded hotels grew from 84,313 rooms in FY12 to 1,07,695 in FY15 at a compounded annual growth rate (CAGR) of 8.5 per cent, the growth slowed to 5.5 per cent in FY16 and it rose to 1,13,622 at the end of March 2016. The industry is, however, expected to add 50 per cent more rooms in the branded hotel category over the period of five years till 2021 and will primarily be driven by the mid-market segment, which is expected to contribute almost 45 per cent of the total additional inventory. While Tier-II towns are expected to witness a sharp rise in the number of branded hotel rooms by 2021, among the larger cities, the NCR region, Bengaluru and Mumbai are expected to add the highest number of rooms. Experts also feel that the industry is expected to grow at a faster pace on account of higher tourist arrivals and rise in business and economic activity.
Pointing towards the slowdown in the pace of proposed inventory, the CARE report said: “The future supply landscape is ever-changing and subject to several external forces that may often delay project openings. It is noteworthy that the pipeline for proposed supply totalled 1,14,466 rooms back in FY08 – the highest in a decade, whereas in FY16, it contracted significantly to just 56,912 rooms.”
The report, released on Thursday, showed that while 40 per cent of the proposed supply of 56,912 rooms between 2016 and 2021 will be contributed by the mid-market segment, 27 per cent of the supply will be in the upscale segment and another 23 per cent will be in the budget hotel category. The luxury hotels are expected to contribute only seven per cent of the additional inventory over the five-year period.
Another report released by ICRA on Thursday also pointed to a slow pace in growth. It said that the ICRA’s premium room inventory database across the country indicates a 4.4 per cent CAGR in supply during the period between FY17 and FY20, and that this growth rate is slower than the supply addition witnessed in the past 6-7 years. “With no large project announcements over the past year, muted supply pipeline is expected to be the backbone for the current upcycle, even as demand continues to grow by about 12 per cent-plus, led by slow recovery in the domestic economy, increasing foreign tourist arrivals (FTA), and higher meeting, incentives, conferences and exhibition (MICE) activity.” said Subrata Ray, senior group vice-president, ICRA.
The ICRA report said that even as there is strong demand growth for rooms across the country, the domestic hotel industry continues to grow at a slow pace. It said that the average occupancy and average room rate in the industry witnessed a marginal improvement of 1-2 per cent year-on-year growth during the previous quarter. “A healthier traction in ARR (average room rate) is necessary over the coming quarters to generate adequate returns, considering the significant capital investments undertaken by the industry,” said the ICRA note.
Smaller cities to lead growth
While the top-13 cities are expected to add 31,519 rooms by 2021 over its base of 84,396 rooms as of March 2016 at a growth rate of 37 per cent, the smaller towns (beyond the top-13) are projected to nearly double their room numbers from existing count of 29,226 to 54,619 (net addition of 25,393 by 2025).
Among the large cities, Bengaluru is expected to add 44 per cent or 5,209 rooms to its existing inventory of 11,799 by 2021, the National Capital Region might add 33 per cent to its existing inventory or 7,312 rooms. Mumbai could add 4,166 rooms to its existing supply of 13,054. Within the NCR region, and across the country, Noida is expected to witness the fastest growth and is expected to almost treble its inventory from existing supply of 1,322 to 3,883 rooms by 2021. Kolkata is also expected to more than double its branded hotel room count from 2,701 in 2016 to 5,910 in 2021.
Interestingly, most of the hotel rooms in smaller towns will come up in the mid-market segment (49 per cent) and the budget hotel category (26 per cent). Only one per cent of the rooms to be added in the smaller towns will be in the luxury segment.
While the report projected smaller cities to lead growth, the data of rise in hotel rooms in FY16 also shows that the smaller cities saw faster growth rate. As against a growth rate of 4.4 per cent seen by the top 13 cities, the smaller cities saw their number of rooms grow by nine per cent from 26,820 in FY15 to 29,226 in FY16.
Among the top 13 cities, Agra witnessed the highest growth of 16 per cent in its inventory in FY16 over the previous year and its inventory went up from 1,755 to 2,036 during the period. Ahmedabad and Bengaluru saw their inventory grow by 7.1 per cent and 6.1 per cent during the period.
The hotel industry has been through some rough patch over the last few months following the Supreme Court’s order in December 2016 to ban sale of alcohol within 500 metres of highways with effect from April 1, 2017. While the SC clarified on August 23, 2017, that the ban was not applicable to licensed establishments within the municipal areas, experts say that the industry is expected to post stronger revenue growth in the coming quarters.
“Going by the recent trends in foreign tourist arrivals into the country and forex earnings growth, improving domestic macro-economic data (barring the transitory dip in economic activities due to demonetisation), and expected ease of business post implementation of GST, ICRA expects 5-6 per cent growth in RevPARs (revenue per available room) during FY18. RevPAR growth is estimated to accelerate to 7-8 per cent during FY19 and FY20, driven largely by anticipated traction in ARRs,” said Ray.
