New rooms, high borrowing costs hit hospitality industry

Nivedita Ganguly Mumbai | Updated on August 16, 2013 Published on August 16, 2013


The nationwide revenue per available room (RevPAR) recorded a 5.2 per cent drop in the hospitality sector in 2012-13 over the previous year, with the five-star hotel segment registering the maximum decline (8.7 per cent), followed by the three-star segment (4.0 per cent), according to HVS Global Hospitality Services.

The consulting and services organisation, focused on the hotel, restaurant and leisure industries, attributes the downswing to 60 per cent of the new supply that entered the market in 2012-13.

High borrowing costs and tight liquidity are the other major contributors towards the decline, the agency has said.

Fiscal year 2012-13 saw an addition of around 9,000 branded rooms, resulting in a nationwide existing supply of 93,479 rooms, an increase of around 11 per cent over the previous year and 138 per cent since 2006-07.

According to Kaushik Vardharajan, Managing Director HVS Hospitality Services, South Asia, with mid market and budget hotels comprising 57 per cent of the proposed supply, there would clearly be a rearrangement within the Indian hotels pyramid, in the space currently shared by different market positioning.

Luxury and upscale hotels have about 40 per cent share in the proposed supply, continuing the downward trend observed during 2010-11 and 2011-12. This trend is especially evident in Pune, Hyderabad and Chennai, and is most certainly a response to the growing number of mid-level domestic business travellers to these cities.

Attention to new mid-market and budget rooms is a favourable development, keeping in mind the industry’s long-term room requirement and the fact that mid-market and budget hotels come up quicker and at a lower cost than lodging products with a higher positioning, Vardharajan said.

HVS anticipates a little over 50,000 branded rooms to be developed over the next five years, taking the total supply to about 1.44 lakh rooms by 2017-18.

Overall, the occupancy levels in Kolkata were the highest (69.5 per cent) in 2012-13, while Mumbai (including Navi Mumbai) registered the highest average rate and RevPAR amongst the 13 major markets that were tracked by HVS.

Bangalore witnessed a 10.7 per cent increase in supply in 2012/13, and yet, the city's hotel market recorded only a marginal drop in occupancy. In 2012-13, Chennai witnessed moderate declines in both occupancy and average rate mainly due to a double-digit growth in room supply (24.1 per cent) as compared to the previous year.


Published on August 16, 2013
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