Alka Kshirsagar

The last three years have seen hectic activity on the luxury hotel front in Pune, with several premium Indian and global brands opening up properties. The latest entrant in this space being The Westin from the Starwood Group.

The number of rooms in this segment, at around 1,500, has nearly trebled during this period, involving an estimated expenditure of Rs 3,000 crore.

Too many rooms

There are several more properties in various stages of construction, including a Hyatt due to open this month. In the next 2-3 years, another 2,000 five-star rooms are expected to hit the market.

For a city that primarily caters to the business traveller, and holds little potential for leisure tourism, industry observers aver that there are just too many rooms to make good business sense.

The recent slowdown has impacted the industry to such an extent that luxury rooms are on offer for 35-50 per cent of the rack rate, and can come for a package that could be as low as Rs 3,000 for a day, with breakfast thrown in. As the situation stands today, room occupancy is at a low of 50-55 per cent and the discounted prices have led to poor recoveries.

Mr Suresh Talera, President, Hotels and Restaurants Association of Western India (HRAWI) says, “The scene is depressing. There's a blood bath in the offing.”

Estimates of room requirements made in the mid-2000s, based on the shortage of rooms in cities like Bangalore and Hyderabad have obviously gone awry on account of the slowdown in the Western world, leading to the present glut, he says. But most owners who have committed their funds to various projects find themselves having to choose between the devil and the deep sea.

“They have started the work, so what choice do they have but carry on and hope for the best,” Mr Talera points out, surmising that the earlier projection of five years for break even is now closer to 10 years.

Costly land

Today, the average cost of building a five-star hotel room ranges from Rs 75 lakh to over Rs 1 crore, not taking into account the land cost, says Mr Ravi Varma, Realtor and President of the National Association of Realtors.

Though budget hotels fare better on occupancy, the prohibitive land cost in the city makes building a low-cost hotel a no-win proposition. At the same time, for the last few years, some 40-50 rooms per annum have been added to the budget room pool, which has also affected the 5-star business adversely.

Till five years ago, Pune had less than a handful of luxury hotels — the Taj, Sun-n-Sand, Le Meridien and Pride. The recent additions have been Radisson, The Westin, Courtyard by Marriott and the Orchid, while those in the pipeline include Hyatt, J W Marriott, Gautam Khanna's Ista, Holiday Inn, Taj Vivanta, Shangri La and Priya Paul's Park Plaza.

With supply well in excess of demand, cannibalism is the order the day, and at least one hotel — the Sun-n-Sand — is understood to be on the block. Seven major projects, including those announced by hotel groups such as the Leela and Oberoi have been shelved, while others have seen the wisdom in hitting the pause button to take stock before going ahead with their investment plans.

(This article was published in the Business Line print edition dated July 11, 2010)
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