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Another few months and Chennai can boast of housing more than a dozen major global brands in the hospitality industry. Be it Novotel, Taj, Marriott, Carlson Rezidor, Choice Hotels, Sheraton, Hilton, Meridian and Luxury Collection, Westin, Hyatt, Aloft, or even relatively lesser-known brands such as Berggruen, it will have them all.
The city that hardly had 1,500 five-star rooms till a couple of years ago currently has 3,000 such rooms. The next couple of months will see an additional 2,000 rooms coming up. Going by the industry's thumb rule of ‘a crore a key' for five-star hotels, the new hotel rooms would involve an investment of Rs 2,000 crore, excluding land value.
While hotel brands that cater to affluent travellers are vying with each other, quietly, over a dozen ‘upscale business' class and budget brands, too, seem to be expanding their footprints in the city.
For example, the Raj Palace hotel group is putting up a huge property on GST Road near Guindy; the Empee group is building a new hotel on Anna Salai; a (Taj) Gateway property is coming up along the Old Mahabalipuram Road (OMR); and tens of beach properties are cropping up on the East Coast Road.
Besides hotels, the serviced apartments sector, too, is gaining prominence in the city with industry majors such as Oakwood, Accor, Ascott and The Royal Orchid group focusing more on this market.
According to Mr Ajit Koushik, Ascott's India Operations Head, the occupancy level in serviced apartments ranges between 80 and 90 per cent. “The growing number of business units, particularly in the electronics and automobile sectors in Tamil Nadu, are turning out to be a new feeder market for us,” he said.
Enough demand?
Will there be enough demand to meet the increasing supply in the city? Given the volume of new hotel rooms coming up in the city, occupancy levels are expected to come down in the next two to three years, say experts.
The consulting and services organisation, focused on the hotel, restaurant, gaming and leisure industries, says demand will grow in the near future, but the increase in supply will make occupancy levels decline in the next couple of years.
Mr Kaushik Vardharajan, Managing Director (South Asia), HVS Global Hospitality Services, said: “We would not recommend developing any more hotels in the luxury and upscale spaces in Chennai for the next few years.”
With top-end luxury brands, such as Westin, Park Hyatt, ITC Grand Chola, JW Marriott and Leela Palace, pitching in for a share of the same guest pie, the rates will come under further pressure. The city has historically shown greater choice in the themed-market segment.
The new luxury and upscale hotels being developed in the city at present will provide additional choices for traveller looking for a more upgraded hotel product, said Mr Vardharajan.
For example, he said, a hotel such as Grand Chola, with an extensive amount of meeting, conferencing and banquet space, can create additional meeting and group demand for itself and also for other hotels in the market.
The hotel will have greater impact in the meeting and conference segment due to the lack of a proper convention centre in Chennai at the current time.
Business traffic
As it is, most of the hotels in the city depend on business traffic. If we take the city's IT corridor — OMR, for example — a clutch of hotels have sprung up on the stretch in the last couple of years.
You have Ginger, Fortune, Aloft, Sabari Classic, Asiana — with close to 800 rooms in all. Over 80 per cent of all the hotel rooms on this stretch are sold to corporate clients, largely through annual contracts. With the amount of commercial and industrial development occurring in areas such as the OMR, Sriperumbudur, Oragadam and GST Road, hotel demand in the city is expected to increase strongly.
However, given the volume of inventory entering the market, it is believed that occupancy and average rate levels will be depressed in the near future.
This supply will be absorbed over a period as commercial development continues.
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