Hotel demand outpacing supply in India, study shows

According to a new study from a real estate research firm, revenue per available room is expected to rise 9.5% this year
Hotel demand outpacing supply in India, study shows
By James Mathew
Sun 14 Apr 2019 09:03 AM

India's hospitality sector is expected to see a 9.5 percent growth in revenue per available rooms (RevPAR) this year, with demand outpacing supply of hotel rooms, according to a new study. 

The hospitality sector in India is also set to see growth in hotel asset transactions in 2019, with the total transaction volume projected to reach $800 million by the end of the year, the study by HVS Anarcok, a leading real estate research firm, said.

“Considering the limited new supply projected in 2020, the hotel industry can record its highest-ever recorded occupancy and is expected to outpace 2006, which was a superlative year for the hotel industry in India,” said Mandeep Lamba, President (South Asia), HVS Anarock. 

Lamba said although the ongoing general elections could dampen some of the sector’s otherwise upbeat performance this year, the tide could recover in India's hospitality sector later this year with the aid of a stable government post-elections to support the required economic growth.

The report, which analysed trends of the past three years, suggest a 'new normal' in the Indian hospitality industry, with brands opting for less risky projects with the highest prospects for timely completion, rather than greenfield projects which pose a higher risk of cancellation.

International operators continue to proliferate, building large-format hotels compared to the majority of their domestic peers, who typically churn out lower-inventory products.

In 2018, international hotel operators also signed more hotel keys than their domestic peers, the report noted. 

At the city-level, the south western Indian state of Goa saw the largest signing of keys in 2018, outpacing Bengaluru.

Goa is normally considered to be a high-entry barrier destination and has previously seen much slower growth in inventory - even though it has been the top-performing market for a very long time, according to Lamba.

The report revealed that 2018 was a slow year in terms of hotel investments, with total hotel transactions volumes in dollar terms contracting to their lowest since 2005 – from $158 million in 2005 to a mere $78 million in 2018.

However, in terms of Indian Rupee value, the total transaction volume recorded was 6 percent higher than in 2005.

Rapid urbanization is increasingly making Tier 3 markets in India more relevant for hotel brands, with nearly a third of new hotel signings emerging from these cities, the report said.

The trend is also leading to more hotel management companies increasingly setting up shop in smaller towns.

On the asset transactions in the sector, the report said 2019 is likely to witness the sale of high-value hotel assets in almost all key Indian hospitality markets.

“In 2019, we expect the Indian hospitality market to see an upsurge in transaction volumes due to distress pricing of hotel assets,” said Shobhit Agarwal, MD &CEO of Anarock Capital.

The expected transaction volume is approximately $800 million, potentially setting a record for hotel transactions in the country, he said.

The successful listing of the boutique hotel brands Lemon Tree and Chalet IPOs (initial public offerings), as well as the recent transactions of hotels Keys and Leela Hotels portfolio is expected to prompt further investment in the hospitality sector, the report said.

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