Hospitality sector good times ahead

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The study predicts demand for hotel rooms to grow at a compounded rate of 10 per cent over the next five years.

Mumbai, Aug. 19

A study conducted by Crisil Research has forecast a surge in hotel room rates well beyond the current highs. The report has also predicted good times for the hospitality industry over the next five years.

The study has predicted a rise in demand for hotel rooms in metros and developing cities. Occupancy rates are expected to increase from the current 74 per cent to 76 per cent and 77 per cent in 2006-07 and 2007-08, respectively. Average room rates (ARR) will, therefore, go up by 20 per cent and 10 per cent in 2006-07 and 2007-08, respectively.

Room supply additions

"Demand for hotel rooms will grow at a compounded rate of 10 per cent over the next five years. Room Supply Additions, the lead indicator of the hotel industry's competitive landscape is not very encouraging though. Room availability factor is only expected to grow at a moderate rate of 5 per cent over the next two years," said Mr Sudhir K. Nair, Head, Crisil Research.

The study, however, predicts that during the period between 2008 and 2011, the room availability factor would go up by 11 per cent.

"This bunching up of supplies post-2007-08 would dampen occupancy rates. This will bring down occupancy rates to as low as 55 per cent by 2010-11," Mr Nair said.

Cities in focus

According to the study, room demand growth in the next five years will be the highest in Bangalore, Hyderabad, Pune and Chennai. These are the cities that will witness the bulk of room additions as well.

Among business destinations, Delhi will continue to face a shortage of rooms over the next five years. No significant addition in room capacity is expected in the near future in Delhi, the report said.

Among leisure destinations, the report has predicted heavy shortage of rooms in Goa and Jaipur that will directly impact the ARR.

(This article was published in the Business Line print edition dated August 20, 2006)
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