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A R E S E A R C H P U B L I C AT I O N | J A N U A RY 2 0 0 9

I N D I A R E P O RT
THE VOYAGE
An exploration of key hospitality markets in India

INDIA R E P O RT

THE VOYAGE - An exploration of key hospitality markets in India

A RESEARCH PUBLICATION

CONTENTS

1 2 4 4 6

Executive Summary The Journey So Far Travel & Tourism Industry in India Fuelling Factors City Overviews

22 Research Findings 29 Concerns & Challenges 30 State Rankings 33 Results of Ranking Exercise 34 Conclusion

EXECUTIVE SUMMARY India's cultural diversity, weather, history, natural offerings as well as people together contribute towards propagating the country's positive brand image across the world. While the recent uncertainty in the economy has affected the hospitality industry at large, India still remains one of the world's fastest growing hotel markets. With an overall increase in leisure and business travellers over the past few years, India's hospitality industry has attracted global attention. A buoyant domestic economy, the government's open sky policy, an overall real estate boom, initiatives to liberalise foreign investment and especially the Tourism Ministry's efforts together contributed to healthy demand for hospitality space in major cities across India. The overall contribution of travel and tourism to the national economy is estimated at approximately 5.3% annually. It is expected that by the year 2020, tourism related activities in India will contribute approximately INR 8,500 billion to the GDP. As the industry constitutes various other related sectors, such as hotels, hospitals, aviation and shipping among others, it acts as a multiplier towards overall revenue generation. This special report endeavours to understand the existing and projected hospitality sector's performance in three categories namely Upscale, Mid-scale and Budget hotels across 11 Indian cities, along with assessment of the external drivers and potential industry factors impacting the industry. The demand drivers for the industry are assessed by examining closely related factors like existing hotel room stock, availability of new hotel properties, human resource availability, policy administration, investment for infrastructure development and socio economic climate. As domestic and international travellers get more apprehensive about security in key Indian cities, occupancy rates and room tariffs are likely to drop in the short term. This can be substantiated by the recent official estimates released by MoT stating the drop in overseas visitors to the country in November 2008 by 2.1 percent as compared to November 2007. Over the next few years, occupancy rates are expected to witness a fall in light of the current economic scenario as well as the anticipated over supply situation in a select markets. The report analyses the performance of 20 states and union territories to provide a cumulative ranking of the top 5 states considering four broad parameters namely Economic Drivers, Demography, Infrastructure and Tourism. We hope to have been of substantial assistance to our readers through this special report.

INDIA REPORT | JANUARY 2009

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INDIA R E P O RT

THE VOYAGE - An exploration of key hospitality markets in India

A RESEARCH PUBLICATION

THE JOURNEY SO FAR Over the last decade, the intensified rush to India for tapping business opportunities had a ripple affect on several sectors that made hay in the sunshine. It was good news for India's hospitality and tourism industry which boasts of diversity in culture, weather, history, nature's offerings as well as people. From a growth driver perspective, while the current uncertainty in the global financial market, along with the credit crisis, in its aftermath, has adversely affected businesses', India's inherent potential and appeal as a tourist, medical and heritage site remains unaffected. The sector is actively leveraging its rich historical background and diversified culture to graduate from being a relatively smaller player to a higher position in the global hospitality arena.
Quick Facts
l India

initiatives and increased investor interest, which has been too evident in the last two years, across all asset classes including the hospitality industry, the current financial crisis has brought with it, a slow down in the industry's growth prospects over the short to medium term. The present economic conditions have led to adversaries such as project delays and in some cases even cancellation of projects, thereby impacting the upcoming hospitality supply to a large extent. Over the years, this sector has been faced with multiple challenges, primary being the individual city level supply-demand disequilibrium in hotel rooms.Yet another micro factor affecting the industry's growth rate is an overwhelming preference for budget category hotels amongst price sensitive corporate/customers. However, major developers have taken a different stand announcing plans to develop 5 star deluxe, 5 star and 4 star category hotels primarily across Tier 1 and 2 cities rather than budget hotels. Anticipation of tying up with international operators and better brand image, better opportunity to attract funding from investors and higher prospective of an early break-even have initiated many developers to enter the hospitality asset class. The overall tourism activity in India during 2007 had remained healthy. Much as Low Cost Carriers (LCC) had revolutionised air travel in the country with no-frills services and low airfares, budget hotels too surfaced a few years ago with the promise to offer better, affordable, standardised and branded hotel rooms at prices matching the unorganised sector. Brands such as Lemon Tree, Indian Hotels, Ginger Hotels, ITC's Fortune brand, Clarks Inn, Choice Hotels and Sarovar Hotels to name a few, introduced hotel rooms for the economy traveller. However, akin to the budget airlines, no-frills branded hotels were also forced to appreciate their room rates on the face of escalating real estate and operational costs, so much so that the tag 'Budget Hotel' has become a misnomer with room tariffs crossing over INR 4,500 (USD 90) per night. In the present low-key market sentiment and the corporate sector going into a 'smart spending' mode with serious cost control

Another micro factor affecting the industry's growth rate is an overwhelming preference for budget category hotels amongst price sensitive corporate/ customers.

is the world's fifth most popular tourist destination according to the World Travel and Tourism Council.1 Occupancy rates for hotels in India are among the highest in the world. From about 8 to 9 branded hotels in 2000, India will be home to approximately 40 hotel brands by 20112.

l Average

Room Rate (ARR) for Delhi and Mumbai are comparable to that of global cities such as New York, Singapore and Hong Kong. ARR in India had doubled in the period between 2003-07. Approximately USD 150 billion is expected to be spent over the next five years on tourism related infrastructure by the Government3.

l Between

24,000 to 25,000 new up-scale hotel rooms are expected in major Indian cities by the year 2011 as compared to a total of nearly 18, 000 rooms in mid-scale and budget segment. stock of hotel rooms will continue to lag behind demand by 2011.

l Total

Business in the hotel industry, much like any other sector, is cyclical in nature. Any significant change in the economy, such as the present liquidity crisis, affects the sector resulting in lower occupancy levels, delays in upcoming projects and anticipated decrease in room rates. Although India boasts of a fundamentally sound economic system, positive infrastructure

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INDIA R E P O RT

THE VOYAGE - An exploration of key hospitality markets in India

A RESEARCH PUBLICATION

measures, the travel and hospitality industry has been adversely hit. India Inc. is now making do with tighter travel budgets, cheaper hotel stays and shorter business tours with many companies accommodating employees in alternate accommodations like guesthouses and serviced apartments instead of star category hotels. Another recent important development has been the growing global concerns over security issues in India following the recent terror attacks in Mumbai. This has resulted in rescheduling and even cancellations of travel plans to India by many foreign tourists especially in the Tier I and II cities. This has affected not only the leisure tourist segment of travellers but also the health and medical as well as MICE (Meetings, Incentives, Conventions and Exhibitions) tourists to India.
Key Statistics - India 2008 Personal Travel & Tourism Business Travel Government Expenditure Capital Investment Visitor Exports Travel & Tourism (T&T) Demand Direct Industry GDP Direct Industry Employment ('000 jobs)
Source: World Trade Tourism Council

2018 E 6,763 1,153 162 3,853 1,743 14,680 3,222 16,437

efforts to communicate the 'Incredible India' campaign together contributed to a robust demand for hospitality space in major cities across India. The 'Incredible India' campaign was launched in 2002 as an integrated marketing and communication effort to promote India as a destination across the world and is considered to be one of the more successful initiatives so far. With the success of this campaign, foreign tourist arrival increased by almost 65%, from 2.38 million in 2002 to 3.92 million in 2005, while foreign exchange earnings have grown by over 95% during the same period. In 2007 inbound tourist arrival touched 5 million, registering an annual growth of approximately 12%. Foreign exchange earnings from tourism for the same period also witnessed an impressive annual growth of 33% from USD 9 million in 2006 to USD 11.96 million in 2007. In keeping with the current growth rate, India's hospitality industry is anticipated to grow at 8 per cent per annum between 2007 and 20164.
GDP Growth Vs.T&T Contribution
10% 8% 6% 4% 2% 0% 2003 2004 GDP Growth 2005 2006 2007 2008 2010 P

1,653 339 59 1,121 552 3,890 1,094 13,127

Contribution of T&T to GDP

Despite the temporary slowdown as enunciated, India is still one of the world's fastest growing hotel markets. With an overall increase in leisure and business travellers over the past few years, India's hospitality industry has attracted global attention. Hotels across all segments achieved healthy occupancy levels until end-2007. A buoyant domestic economy, the government's open sky policy, an overall real estate boom, initiatives to liberalise foreign investment and especially the Ministry of Tourism's (MoT)

Source: Indiastat

Over the years 'hospitality', as a service in India, has witnessed a paradigm shift with many international hotel chains and operators entering the domestic market, enabling new business prospects for established corporate firms and entrepreneurs alike. Though they operate in different domains the hospitality sector by and large shares a direct relationship with the travel and tourism industry.

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INDIA R E P O RT

THE VOYAGE - An exploration of key hospitality markets in India

A RESEARCH PUBLICATION

TRAVEL & TOURISM INDUSTRY IN INDIA Tourism is an integral part of the global economy and India is no exception to this rule. This industry, by virtue of being labour intensive, is a significant employment generator and a substantial contributor towards foreign exchange for any nation. The Indian tourism industry directly contributes around 2% towards the national GDP. According to the Hotel Association of India, the overall contribution of travel and tourism to the national economy is estimated at approximately 5 5.3% annually. It is expected that by 2020, tourism related activities in India will contribute approximately INR 8,500 billion to the GDP6. As the industry constitutes various other related sectors, such as hotels, hospitals, aviation and shipping among others, it acts as a multiplier towards the overall revenue generation.
Foreign Tourist Arrival Vs. Forex Earnings
6
Foreign Tourist Arrival
Phenomenal earnings growth of 57% during 2006; Positive image of the country and successful branding of 'incredible India 'Campaign' are the factors.

infrastructure, positive government initiatives on tourism and to a larger extent India's emergence as an outsourcing hub. According to World Travel and Trade Council (WTTC) estimates, India's tourism demand is likely to grow at an average rate of 8.8% till 2013, making it the third fastest growing tourism market7 in the world. In addition, the government's move to declare hotel and tourism industry as a high priority sector with a provision for 100% foreign direct investment (FDI) through the automatic route has made this industry further lucrative for parking funds. It is estimated that the hospitality sector could see an infusion of USD 11.41 billion8 with around 40 international hotel brands making an entry into the country by 2011. INDIA'S BOOMING HOSPITALITY SECTOR: FUELLING FACTORS Economic Factors:

14
FX Earnings

l l l

Favourable economic and political climate Sustained GDP growth between 7.5 - 8% Steady FDI equity inflow which crossed the USD 10 billion mark in 2006-07

5 4 3 2 1

12 10 8 6 4 2 0
Q1 2008 2006* 2007**

2001

1995

2003

1996

1999

1998

2000

2002

1997

2004

2005

0

l

Growth in manufacturing and services sector

Influencing Sector Dynamics:
l

FX Earnings from tourism (USD Billion) Foreign Tourist Arrival to India (Million)

Source: Indiastat

Surge in foreign tourists at a Compound Annual Growth Rate (CAGR) of 14% over the past five years

In the provisional data released by the Ministry of Tourism (MoT), Travel & Tourism industry recorded an annual growth of 33% during 2007 in terms of foreign exchange earnings in a single year. The number of inbound travellers also saw an increase in this period. Although foreign tourist arrivals (including business and leisure travellers) are the prime source of revenue growth, complimentary sectors such as medical tourism and MICE travel also contributed significantly towards India's GDP. Tourist arrival is expected to increase gradually in the coming years on account of improved overall

l

Rising demand for good quality accommodation due to increased growth of tourist arrival (domestic and foreign) for leisure and business.

Infrastructure Play:
l l

Additional inter city air connectivity Up-gradation of National Highways and State Highways Easy accessibility to various places of tourist importance through massive railway network

l

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INDIA R E P O RT

THE VOYAGE - An exploration of key hospitality markets in India

A RESEARCH PUBLICATION

Government Initiatives:
l

l

Few of the other key government initiatives: w been proactive in sanctioning MoT has funds for various tourism projects and several initiatives have been taken up to boost the 'Incredible India' campaign to give impetus to tourism sector. w Few State governments have initiated/implemented/amended tourism policies to support the initiatives of the Central Government: - Harayana Tourism Policy, 2008 – implemented - Tamil Nadu Tourism Policy Note 200809 was implemented w Budget 2008-09 policy decisions: Union - Five-year income tax holiday to two, three and four star category hotels to be established in 27 specified districts, which have been declared as "World Heritage Sites" by United Nations Educational, Scientific and Cultural Organization (UNESCO). However, these hotels would have to become operational between 1st April 2008 and 31st March 2013. This measure has been taken in response to the significant rise in tourist arrivals at these heritage sites.

Initiatives undertaken by the MoT to overcome accommodation shortage: w subsidy sanctioned for 43 budget Capital category hotels and interest subsidy for 86 hotels. w Recognition of various home owners by classifying their facilities as 'Incredible India Bed and Breakfast establishments' under 'Gold' & 'Silver' category. w Acquisition of land from land owning agencies for building hotels in Public Private Partnership (PPP) model on Build, Own, Transfer (BOT) basis.

l

MoT promoted several tourism driving concepts which also led to overall growth in this sector9: w Rural Tourism: Aimed at promoting rural India in an effort to sustain rural traditions and pristine environments, the move has proved to be a great getaway option for urban tourists. w Tourism: Aimed at providing Cruise world-class infrastructure and related facilities at various ports and attract foreign tourists for cruise shipping in India. w Eco-Tourism: Aimed at preserving, retaining and enriching natural and cultural resources for environmental protection and community development. w Adventure Tourism: Financial assistance is being provided to State/ Union Territories to set up facilities for trekking, rock climbing, mountaineering, aero-sports, winter/ water sports, wildlife viewing etc. w Tourism: Medical and health Medical facilities available across all cities in India are being promoted on account of world class doctors and hospitals as less expensive treatment.

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THE VOYAGE - An exploration of key hospitality markets in India

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CITY OVERVIEWS The objective of this study has been to understand the existing and projected hospitality supply in three categories as mentioned below for the prominent 11 Indian cities under consideration; as well as assessing the external drivers and potential industry factors impacting the hospitality industry in these cities. Apart from this, the state ranking has been done for 20 states based on economic drivers, tourism, demography data and existing infrastructure parameters. The time period of the study extends from the current period to 2011. Study Structure
Prominent Cities Hotel Classification Upscale Midscale Budget Upscale Midscale Budget Upscale Midscale Budget Upscale Midscale Budget Upscale Midscale Budget Upscale Midscale Budget Upscale Midscale Budget Upscale Midscale Budget Upscale Midscale Budget Upscale Midscale Budget Upscale Midscale Budget Existing (Number of Rooms) 7718 2967 1795 7017 2624 2230 3198 2016 3604 2427 2142 2910 1537 943 2608 1498 432 422 460 1135 739 593 242 849 3192 1029 3138 567 468 1033 1965 804 1312 Upcoming (Number of Rooms) 4600 4106 3474 2686 3336 600 5866 3132 641 2104 1310 310 3554 1937 250 2002 453 0 1984 1683 229 867 366 150 2480 435 0 520 683 120 609 1016 0

The sub-segments of 2 star and 1 star category hotels, home stays and service apartments have not been considered for our study. Several classifications for hotel categories exist, but for our study we have undertaken the following assumption for our three hotel categorisations: Up-scale Hotels : Comprises 5 star delux and 5 star category hotels Comprises 4 star category hotels Comprises 3 star category hotels

Mid-scale Hotels : Budget Hotels :

Delhi (NCR)

Mumbai

Bangalore

We aim at giving a true representation of 5 star deluxe, 5 star, 4 star and 3 star category hotels across these eleven cities to the best of our knowledge and with reliable data made available in the public domain. Cushman & Wakefield Research has mapped the existing up-scale, midscale and budget hotels in the course of this paper and we have also tried to map the potential areas for future development within the cities under consideration.

Chennai

Hyderabad

Kolkata

Pune

Ahmedabad

Goa

Cochin

Jaipur

Note:The choice of these cities is based on the highest tourist inflows, according to MoT data and the data for existing and upcoming hotels has been considered in the organised sector. Source: Cushman & Wakefield Research

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THE VOYAGE - An exploration of key hospitality markets in India

A RESEARCH PUBLICATION

AHMEDABAD Ahmedabad is an important trade, commerce and industry base in western India as well as Gujarat, attracting an increasing number of business/corporate travellers, largely on account of increased investments within the state which has prompted the state government to be proactive and upgrade the city's overall infrastructure. Proximity to the port at Surat has also enabled increased business activity within the city. There are few key tourist attractions within the city like Sabarmati Ashram and Gir National Park to name a few; besides this,
Ahmedabad City Map
Gota Chandkheda

Ahmedabad is a transit destination to Mount Abu in Rajasthan which is a leisure/ holiday hill station. The city also boasts of few very reputed educational institutions (including IIM, Ahmedabad) that also contribute to check-ins. Hospitality Dynamics
l

Out of the existing hospitality stock of approximately 1,600-1,800 rooms, approximately 50% fall under the budget category, followed by up-scale hotels accounting for 35% of all rooms under consideration.

l

C&W research study shows Ellis Bridge, Navrangpura, Khanpur and Nehru Bridge as prominent micro-markets that have emerged as potential prime hospitality sub-markets for up-scale and budget hotels.

l Acher Hansol Chandlodia Ranip Ghatlodia Sola Memnagar Shahibagh Naranpura Haripura University Area AHMEDABAD Saraspura ARR (in INR) Hirawadi

Occupancy Rate in the city's hotels increased marginally from 72% in 2006-07 to 76% in 2007-08 with increased quality supply last year. Similarly the ARR in the city has also gone up substantially by approximately 31%; to arrive at INR 5,130 in 2007-08 as against INR 3,910 in the previous year.

Gurukul Vastrapur Satellite

Average Room Rate Vs. Occupancy - Ahmedabad
6,000 5,000 4,000 3,000 2,000 1,000 0 0 2003-04 CTM ARR Low 2004-05 2005-06 ARR High 2006-07 2007-08 Occpancy 30% 60% 90% Occupancy Rate (%)

Fatehpur Vejalpur Vasana Paldi Kankarai Mani Nagar Juhapura Vishala Amraiwadi

Source: CRISIL
Ghodasar

Upcoming Room Supply - Ahmedabad
Isanpur 10% Narol Vatwa 31% 59%

Upscale

Midscale

Budget

Upcoming Supply Zone
Source: Cushman & Wakefield Research

Upscale

Midscale

Budget

Source: Cushman & Wakefield Research

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THE VOYAGE - An exploration of key hospitality markets in India

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l

Market segmentation indicates that nearly 60% of the city hotel occupants are business/corporate travellers, while nearly 14% of the guests represent leisure segment.

Outlook Fresh supply addition during 2008-2011 is likely to witness a more pro up-scale shift with

approximately 1,300-1,500 rooms across categories. Of this estimate, approximately 63% is likely to be in the up-scale category followed by 26% in the mid-scale category. With more commercial and retail supply expected in a couple of years, the hospitality industry in the city is likely to be much more active in the years to come.

BANGALORE (Bengaluru) While ARR in Bangalore witnessed an annual increase of 1% in 2007-08, occupancy rates have remained stagnant for the past two years. Bangalore (officially Bengaluru) is home to numerous public sectors undertakings, aerospace, defence establishments, biotech as well as manufacturing setups. Besides this, Bangalore is also one of the leading contributors to India's IT/ ITeS industry; which resulted in increased inflow of business travellers within the city. In the past couple of years the hospitality sector in the city has indirectly received the necessary impetus from state government; in the form of increased investment across various sectors coupled with suitable business friendly policies. The newly-built Bengaluru International Airport (BIA) (started operations in May 2008) helped add domestic and international sector connectivity. Bangalore though not a major leisure destination by itself has been a transit location for cities like Mysore, Coorg, Tirupati, Hampi, etc. The city is also considered as an educational hub housing few renowned institutions offering various professional courses in engineering, medicine, management, law etc which acts as a driving factor contributing to demand for room nights. Bangalore is also a MICE destination and has gained significant importance in the recent past due to the newly formed Bangalore International Exhibition Centre (BIEC). Hospitality Dynamics
l l

ARR in the city increased by a minimal 1% to reach INR 12,310 in 2007-08 as against INR 12,200 in the previous year, while occupancy rate stagnated at 74% for the past two years.

l

Nearly 76% of guests staying in up-scale and mid-scale hotels belong to the corporate profile category and similarly in budget hotels, close to 60% of the guests visit for business purpose.
Average Room Rate Vs. Occupancy - Bangalore
16,000 12,000 90% Occupancy Rate (%)

ARR (in INR)

60% 8,000 30% 4,000 0 2003-04 ARR Low 2004-05 2005-06 ARR High 2006-07 2007-08 Occpancy 0

Source: CRISIL

Upcoming Room Supply - Bangalore
6%

31% 63%

There is a fair distribution of existing hotels in all categories, with budget hotels accounting for a maximum of 43%, followed by up-scale hotels at 33%.

Upscale

Midscale

Budget

Source: Cushman & Wakefield Research

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INDIA R E P O RT

THE VOYAGE - An exploration of key hospitality markets in India

A RESEARCH PUBLICATION

Outlook Whitefield, Off CBD locations and the North Bangalore stretch are likely to witness the majority of the upcoming supply. The upcoming supply from 2008-2011 has seen a shift, with nearly 63% supply expected in the up-scale market, unlike the previous years when there

was an equal distribution amongst all category of hotels. Upcoming supply comprises of approximately 10,000 – 10,500 hotel rooms spread across 44 hotels. ARR and occupancy rate are likely to witness further correction in 2009 due to the influx of new supply besides the existing slowdown in economy and global turmoil.

Bangalore City Map
Kumbharhalli Ganigarahalli Vidyaranya Pura AMCO Colony Sanjay Nagar Yelahanka New Town NH 7 Dasarahalli Aduru Kalkere Kannur

Madanayakahalli

Ramachandrapura NH 4 Peenya Jalhalli

Byappanahalli Bidrahalli

Hebbal

HBR Layout

Nandini Layout Basaveshwara Nagar

Kaval Byrasandra Cleveland Town Bennigana Halli CV Raman Nagar Airport Mahadevapura Doddanekundi Brooke Field Baligeri

Anjana Nagar Nagarbhavi

Kamakshipalya Rajaji Nagar Annapurneshwari Nagar Vijaya Nagar Gavipuram Extension Banashankari Rajarajeshwari Nagar JP Nagar

BANGALORE Gavipuram Koramangala

Marathahalli

Kengeri Satellite Town Kengeri

HSR Layout

Sarjapur Rd

Singasandra Hulimavu SH 17 Electronic City NH 209 Hakkipikki Colony Bommasandra Industrial Area Begur

Kaglipur

Upscale
Source: Cushman & Wakefield Research

Midscale

Budget

Upcoming Supply Zone

CHENNAI Chennai, a metropolitan city, is an important commercial and industrial hub of India. The city is host to various industries such as manufacturing, automobile ancillaries, IT/ ITeS, shipping, etc. and this strong commercial and industrial presence in the city has resulted in large inflow of business travellers. Besides Chennai being a tourist attraction in itself, proximity to traditional destinations like Pondicherry, Mahabalipuram, etc has made it a favourable leisure destination too. Chennai's

physical infrastructure is good with two ports as well as an excellent road and rail network.
Average Room Rate Vs. Occupancy - Chennai
10,000 8,000 ARR (in INR) 6,000 4,000 2,000 0 2003-04 ARR Low 2004-05 2005-06 ARR High 2006-07 2007-08 Occpancy 0 60% 90% Occupancy Rate (%)

30%

Source: CRISIL

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INDIA R E P O RT

THE VOYAGE - An exploration of key hospitality markets in India

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Hospitality Dynamics
l

Upcoming Room Supply - Chennai
8%

According to C&W Research estimates, room stock Chennai constitutes of 7,400 – 7,600 hotel rooms, of which, budget hotels account for approximately 39%, followed by up-scale hotels at 33%.
Chennai City Map

35% 57%

Upscale Vyasarpadi Royapuram

Midscale

Budget

Korattur Korattur Eri Villivakkam Perambur

Source: Cushman & Wakefield Research

Man Rd Dairy Rd Ayanavaram Choolai MTH Rd New Avadi Rd Thirumangalam Ambattur Industrial Estate Anna Nagar Kilpauk Poonamallee High Rd Chetpet Maduraivoyal Koyambedu Choolaimedu CHENNAI Vanagaram Valasaravakkam Porur Vadapalani NSK Salai Arcot Rd Theyagaraya Nagar Royapettah Periyamet

Old Washermanpet George Town Sowcarpet

l

GH Rd

Chintadripet

Triplicane Marina Beach

Amongst the three major south cities, Chennai witnessed an increase in ARR by 23% from INR 6,260 in 2006-07 to INR 7,690 in 2007-08 owing to the improved connectivity with Association of South East Asian Nations (ASEAN) countries and Middle East. On the other hand influx of quality supply during the same timeframe led to a corresponding decline from 77% to 75% in occupancy rate.

l

Teynampet Mylapore

Mowlivakkam

Jawaharlal Nehru Rd Nandambakkam

Nandanam

Santhome Beach

Adyar River Sardar Patel Rd Besant Nagar

Market segmentation of hotel occupants indicate that corporate/ business travellers to the extent of 59% stay in the up-scale & midscale and 61% in budget category. Contribution by leisure tourists is more in favour of budget hotels accounting for 19% in comparison to upscale & mid-scale options contributing 9%.

St Thomas Mt

Adyar Alandur Guindy IIT Madras Tharamani

Outlook Chennai is likely to witness an addition of 3,600 3,800 room inventory over the next 3-4 years trying to match up the future demand. The IT/ ITeS sector remains the primary demand driver for up-scale hotel rooms, closely followed by the manufacturing sector. This expected room supply is likely to be spread across 15 hotels with upscale category comprising 57% of the total upcoming supply followed by 35% in the mid scale category.

Airport Madipakkam Sriperumbudur Pallavaram Velachery Tirusulam Puzhuthivakkam Perungudi Kotivakkam Thiruvanmiyur Valmiki Nagar

Palavakkam Pallikaranai Okkiyam

Upscale

Midscale

Budget

Upcoming Supply Zone
Source: Cushman & Wakefield Research

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THE VOYAGE - An exploration of key hospitality markets in India

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GOA Goa is one of India's most visited tourist locations due to its numerous beaches, colonial architecture and unique Indo-Portuguese heritage. The state attracts an average of 1.2 million tourist population which is almost equal to the state's population. Almost 12% of the total foreign tourists arriving in India visit Goa while nearly 75% of the total direct charter traffic is destined for the state. Tourism in fact remains the main contributor to the state
Goa City Map

Tourism remains the main contributor to the state economy in Goa.

economy with numerous leisure events like popular flea markets and the Goan carnival celebrated here. Further, there are several corporate events, meetings and conferences held in the city that essentially look at the up-scale segment. The Department of Tourism, Government of Goa, is instrumental in planning and providing the basic tourist infrastructure and other facilities/amenities for tourists in the state. Goa has been promoted as a round-the-year tourist destination in India and overseas through various events, publicity literature, media and other publications. Under the Goa Registration of Tourist Trade Act, 1982, the body also exercises control over hotels and travel trade activities in the state.
Upcoming Room Supply - Goa
15%

Chapora River

Bardez

Virdi

Quitula Mapuca Chorao Sanctuary

Bicholim (Dicoli) Sanquelim

Saligao

Panaji NH 17 Goa Velha Curti Marmagao Cortalim Sancoale Kesarvale Verna Ponda Tisk Upscale 85% Midscale

Source: Cushman & Wakefield Research

Hospitality Dynamics
l Madgaon

The existing stock of hotel rooms in Goa is pegged at approximately 7,200 – 7,500 of which up-scale and budget hotel rooms account for nearly 43% each, followed by mid-scale at 14%.

l NH 17

During 2006-07, leisure traffic both domestic and foreign accounted for nearly 39% of the total room occupants in up-scale hotel category and 44% for mid-scale and budget category.

l

Chaudi

NH 17

Upscale

Midscale

Budget

Upcoming Supply Zone
Source: Cushman & Wakefield Research

Increase in domestic and foreign tourist inflow has resulted in increase in ARR in 2007-08 by approximately 19% since the previous year and similarly the Occupancy Rate has increased by 2 points to 74% in 2007-08.

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INDIA R E P O RT

THE VOYAGE - An exploration of key hospitality markets in India

A RESEARCH PUBLICATION

Outlook Approximately 2,800 – 3,000 hotel rooms under up-scale and mid-scale categories are to be made available over the next 3 - 4 years. This upcoming room inventory is likely to be available across 20 - 25 properties (including capacity addition to existing properties). There is likely to be some impact on the leisure tourists inflow into the city in the coming months on account of the global recession and shifting of the international airport from south (which is predominantly been attracting international tourists) to north Goa. With the

master plan being released proposing likely changes in the land use, the future supply is likely to be impacted.
Average Room Rate Vs. Occupancy - Goa
9,000 7,500 75%
ARR (in INR)

100%
Occupancy Rate (%)

6,000 4,500 3,000 1,500 0 2003-04 ARR Low 2004-05 2005-06 ARR High 2006-07 2007-08 Occpancy 25% 0 50%

Source: CRISIL

HYDERABAD Historically, the economy of Hyderabad has been dependent on the manufacturing and services industries. Sustained growth in IT/ ITeS, Biotech and Pharmaceuticals sector is a key demand driver for the hospitality sector in the city with respect to business/corporate travellers. In the recent past Hyderabad has emerged as a medical tourism hub with opening up of few reputed hospitals. Besides this, the International Convention centre has enabled the city to become a preferred MICE destination. The State government continues to facilitate development of social and public infrastructure such as the recently completed new international airport at Shamshabad. Hospitality Dynamics
l

foreign business travellers at 13% in the categories under consideration.
l

The Average Occupancy Rate in 2006-07 was 75%, however, the subsequent year has seen a marginal decline to 72%, on account of infusion of additional room inventory.

l

The ARR, however, grew by approximately 14% between 2006-07 and 2007-08 due to an increase in demand for rooms.

Average Room Rate Vs. Occupancy - Hyderabad
10,500 9,000 ARR (in INR) 7,500 6,000 4,500 3,000 1,500 0 2003-04 ARR Low 2004-05 2005-06 ARR High 2006-07 2007-08 Occpancy 20% 0 60% 40% 100% Occupancy Rate (%) 80%

The existing hotel room stock of approximately 5,000 – 5,200 rooms is dominated by budget category accounting for approximately 51% of this total stock; spread across prime business districts of Secunderabad, Sarojini Devi Road, Ameerpet, Lakdikapul, Raj Bhavan Road and Nampally.

Source: CRISIL

Upcoming Room Supply - Hyderabad
4% 35%

l

Up-scale hotels have a presence in the prime localities of Banjara Hills, Begumpet, Madhapur and Gachibowli.

61% Upscale Midscale Budget

l

Domestic business travellers account for 46% of the room occupancy, followed by

Source: Cushman & Wakefield Research

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Outlook Approximately 5,600 - 5,800 additional rooms are expected to become available during 200811, spread across 25 - 30 hotels to support the needs of increased economic activity within the city. Off late, many leading developers have been associated with international/branded hotel

operators for new projects in anticipation of higher returns and the goodwill attached to the brand. This trend is likely to continue in the years to come. As a result, up-scale and midscale hotels constitute a major chunk of the upcoming room inventory, at approximately 62% and 34%, respectively.

Hyderabad City Map
University of Hyderabad NH9 Hitech City SR Nagar Madhapur Ameerpet Yousufguda Mumbai Rd Jubilee Hills K Brahmananda Reddy National Park Shaikpet Army Area Manikonda Tolichowki Osman Sagar Rd Military Area Langar House Mehdipatnam K Brahmananda Reddy National Park Masab Tank Begumpet Sanjeevajah Park Hussain Sagar Lalbahadur Nagar Padmarao Nagar Ram Nagar Nacharam Industrial Area Tarnaka Habsiguda Osmania University Ramanthapur Kachiguda Koti HYDERABAD Malakpet Rambagh Mrigavani National Park Nehru Zoological Park Charminar Chintalmet Mir Alam Katedhan Tank Industrial Area Nawab Saheb Kunta Musa River Hymayat Sagar Rd Rajendra Nagar Premavathi NH 7 Pet Budvel Hayat Lal Barwaza Kanchan Bagh Saidabad Colony Dilsukhnagar LB Nagar Rd Amberpet Uppal Kalan Nagole Uppal Warangal Rd Nagole Rd Marredpally Malkajgiri

Gachibowli

Boduppal

Nallakunta

Vijay Nagar Nampally Colony Karwan

LB Nagar Mahavir Harini Vanasthali NH 9 National Park Vanasthalipuram

Inner Ring Rd Gurram Guda

Himayat Sagar

Upscale
Source: Cushman & Wakefield Research

Midscale

Budget

Upcoming Supply Zone

JAIPUR Jaipur, the capital of Rajasthan, has been a major tourist destination for both international and domestic tourists. The city appeals to a mix of rich cultural, historical and business interests. A major destination for traditional gems, precious stones, garments, handicrafts and marble, there are plenty of heritage sites in Jaipur, which has enabled it to become one of the preferred Asian tourist destinations. The government has taken initiatives to promote tourism and to bridge the demand-supply gap for tourist accommodation

and leisure activities. Jaipur is also witnessing moderate demand for IT/ITeS industry.
Average Room Rate Vs. Occupancy - Jaipur
10,000 7,500 ARR (in INR) 5,000 2,500 0 2003-04 ARR Low 2004-05 2005-06 ARR High 2006-07 2007-08 Occpancy 100% 75% 50% 25% 0 Occupancy Rate (%)

Source: CRISIL

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Hospitality Dynamics
l

l

The existing hospitality supply in Jaipur consists of 4,000 – 4,200 rooms spread across 71 hotels.
Jaipur City Map
Vishwakarma Industrial Area

Approximately 48% of the existing supply comprises of up-scale hotels, primarily located along Amber Fort Road, Amer Road, Tonk Road, Bhawani Singh Road and M.I. Road followed by 32% of budget hotels located in areas such as Bani Park, S.C. Road, Station Road, Civil Lines and Sindhi Camp.

l

Vidyadhar Nagar

Jal Mahal Talav

Impact of the US sub-prime crisis that began in September last year and growing domestic terrorism (blasts in Jaipur city) resulted in occupancy rates dipping from 70% in 2006-07 to 64% in 2007-08. On the contrary, there is an increase of approximately 6% in ARR from 2006-07 to 2007-08.

l Shankar Nagar Badanpura Bani Park Military Cantonment Khatipura Civil Lines JAIPUR Rambagh Shyam Nagar Devi Nagar Ram Nagar Bais Godam Gopalpura Arjun Nagar Tonk Phatak Gandhi Nagar Tilak Nagar Jawahar Nagar Adarsh Nagar Sindhi Camp Pink City Transport Nagar

Similar to Goa, Jaipur being a leisure destination witnessed close to 33% occupants in the up-scale & mid-scale category in the leisure segment.
Upcoming Room Supply - Jaipur
37%

Vidyut Nagar

63%

Upscale

Midscale

Budget

Mansarovar

Source: Cushman & Wakefield Research

Outlook Jaipur is likely to witness supply of 1,600 – 1,800 rooms in the next three years, of which 63% fall in the mid-scale category and the remaining 37% in up-scale category. This increase in the number of rooms is attributed to increased domestic business travel, interest from the MICE market and a rise in international charted flights bringing in foreign tourists.

Airport

Upscale

Midscale

Budget

Upcoming Supply Zone
Source: Cushman & Wakefield Research

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KOCHI The growing uppermiddle income population coupled with the development of physical infrastructure (airports, roads etc) has created a better platform for the hospitality sector in smaller Tier III cities like Kochi. Kochi, the economic capital of Kerala by volume of trade, in the recent past has emerged as one of the fastest-growing tier-III cities in India. The key economic drivers here are the fishing industry, textile retailing, seafood and spice export, tourism, ITES etc. The State Government is proactive in promoting itself as an attractive global tourist destination. With the tourism department having fruitfully promoted cities such as Kochi and Alapuzha, the total number of domestic and foreign tourists visiting the state has increased considerably. With good size of upper-middle income population coupled with development of physical infrastructure (airports, roads etc) has created a better platform for the hospitality sector in smaller Tier III cities like Kochi.
Kochi City Map
Vaduthala Edappally Elamakkara Palarivattom

Hospitality Dynamics
l

Budget hotels in the city account for nearly 50% of the total existing supply of approximately 2,000 – 2,200 rooms. In this category, the profile of guests comprises 43% corporate and 30% of leisure travellers.

l

ARR in Kochi has increased by 12% in 200708 over the previous year largely on account of the overall increase in tourism related activities.

l

Occupancy rate recorded a marginal decline to touch 64% in 2007 -08 as against 67% in 2006 – 07.

Outlook Kochi is expected to witness an additional supply of approximately 1,200 – 1,400 hotels rooms in the next three years. This supply will be concentrated towards up-scale (39%) and midscale (52%) categories essentially owing to the gradual increase in foreign and domestic tourists to the city. In the years to come, the profiles of guests are likely to remain concentrated towards leisure tourism because of the aggressive tourism promotion initiatives undertaken by the state government.
Average Room Rate Vs. Occupancy - Kochi

Kaloor

Ayyappankavu Kathrikadavu 5,000 100% 75% ARR (in INR) NH 47 Vembanad Lake 2,500 50% 25% 0 2003-04 Ravipuram Kappalandimukku Thevera Chelavannur Vytilla ARR Low 2004-05 2005-06 ARR High 2006-07 2007-08 Occpancy 0 Occupancy Rate (%)

MG Road

Kadavanthara

Source: CRISIL

Upcoming Room Supply - Kochi
9%

Airport Thopumpady COCHIN

Konthuruthy

Maradu

39%

52%

Upscale

Midscale

Budget

Upcoming Supply Zone
Source: Cushman & Wakefield Research

Upscale

Midscale

Budget

Source: Cushman & Wakefield Research

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KOLKATA Kolkata, the capital of West Bengal, is the commercial capital of the north-eastern region. Most companies have their regional offices in the city which acts as a major demand driver for the hospitality sector. Kolkata is also a major commercial and military port, being the only city in the region to have an international airport besides having good port infrastructure. It is also the headquarters of Indian corporations like ITC Ltd, Birla Corporation, RPG Ltd, Peerless Industries, etc. Many global and domestic software companies have set foot in the city and the gradually growing IT/ ITeS sector is expected to drive the development of the hospitality sector in the city. Constructions of various flyovers, up-gradation of the international airport and extension of METRO have been a few of the initiatives taken to improve infrastructure and to keep pace with all the development activities. Kolkata has also gained significance as a MICE destination with large number of conferences held at the city.

Hospitality Dynamics
l

The existing room inventory consists of 2,300 – 2,500 rooms spread across 23 hotels.

l

Approximately 64% of this room inventory consists of up-scale hotels, primarily located along Salt Lake City, Park Street, Jawaharlal Nehru Road and AJC Bose Road.

l

The remaining existing room inventory is divided into mid-scale and budget hotels each constituting approximately 18%.
Average Room Rate Vs. Occupancy - Kolkata
8,000 6,000 4,000 2,000 0 2003-04 ARR Low 2004-05 2005-06 ARR High 2006-07 2007-08 Occpancy 80% 60% 40% 20% 0 Occupancy Rate (%)

Source: CRISIL

Kolkata City Map
Liluah Paikpara South Dum Dum Krishnapur Beniatola Ultadanga Salt Lake Shibpur KOLKATA Bow Bazaar Hooghly River Shalimar Tangra Gobra Dhapa Bhawanipur Mominpur Rajarhat Gopalpur Nature Park Taratala Kalighat Garfa Behala Tollygunge Royal Calcutta Golf Club Paschim Darisha Purba Darisha Kazipara Naktala Bijoygarh Baishnabghata Patuli Township Kasba Haltu Alipore Ballygunge Topsia Tiljala Beleghata Kulia Narkeldanga Kankurgachi

Shalkiya Mail Panchghara

Garden Reach

ARR (in INR)

Santoshpur

Upscale
Source: Cushman & Wakefield Research

Midscale

Budget

Upcoming Supply Zone

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l

ARR increased by 25% from INR 5,500 in 2006-07 to INR 6,860 in 2007-08 due to increasing demand for room nights in areas like Salt Lake, Rajarhat, Kariadanga, Dankuni etc. Similarly the occupancy rate witnessed a marginal increase from 75% in 2006-07 to 76% in 2007-08.
Upcoming Room Supply - Kolkata
18%

l

Similar to other metros, Kolkata is no exception to the business/ corporate travellers being the major occupants (63%) in the hotels under consideration.

Outlook New supply of approximately 2,400 - 2,600 rooms is expected to come up in the city over the next three years, spread across 11 new hotel developments. Majority of these rooms will be in up-scale category constituting approximately 82% of the total expected room supply, with the remaining 18% in the mid-scale category. Additional supply is expected to be concentrated along the EM Bypass, Salt Lake Sector V and New Town.

82% Upscale Midscale

Source: Cushman & Wakefield Research

MUMBAI In a knee-jerk reaction to the recent Mumbai terror attacks, a drop in occupancy rates has been noticed in the city, thereby forcing hoteliers to discount rack rates in a measure to maintain minimal occupancy levels and market share. Mumbai, the commercial and entertainment capital of India, houses important financial institutions such as the Reserve Bank of India, Bombay Stock Exchange and National Stock Exchange of India etc. There are plenty of Banking Financial Service and Insurance (BFSI) companies operating from this city besides the IT/ ITeS firms; these two sectors are key demand drivers for the hospitality sector. The city has improved connectivity to various leisure and commercial hubs like Pune, Goa, Thane, Nashik, Powai, Daman & Diu etc. Mumbai is also a transit city for foreign tourists travelling to other cities within the country and also houses several corporate headquarters.
Average Room Rate Vs. Occupancy - Mumbai
12,500 10,000
ARR (in INR)

Excellent rail network, improved airport infrastructure, additional international and domestic air routes, sea and harbour links in the city are few critical factors providing impetus to the hospitality sector. Another noticeable trend in the city is the large number of upscale projects located in close proximity to the airport. The State Government is launching/ promoting medical tourism in the city to attract visitors from other states. Of the total travellers that visit the city, approximately 80% constitute business travellers and the rest represent the leisure category. Hospitality Dynamics
l

90%
Occupancy Rate (%)

75% 60% 45%

7,500 5,000 2,500 0 2003-04 ARR Low 2004-05 2005-06 ARR High 2006-07 2007-08

Of the total existing inventory of approximately 11,800 – 12,000 rooms, upscale hotels account for the majority at 59% demand which is largely from business travellers.

30% 15% 0

l

Occpancy

Source: CRISIL

Being the commercial and financial hub of the country, hotels in Mumbai witnessed healthy occupancy of approximately 76% from 2006 till 2008. While ARR closed at high of INR 11,300 in 2007-08. In a knee-jerk reaction to the recent Mumbai terror attacks, a drop in

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occupancy rates has been noticed in the city, thereby forcing hoteliers to discount rack rates in a measure to maintain minimal occupancy levels and market share.
l

Upcoming Room Supply - Mumbai
9%

During 2006-07, foreign business travellers accounted for approximately 30% of the total room occupancy in up-scale hotels, followed by domestic business travellers and meeting participants. However, in the midscale and budget hotels domestic business travellers accounted for approximately 46% of occupancy in 2006-07, followed by foreign business travellers.

44% 47%

Upscale

Midscale

Budget

Source: Cushman & Wakefield Research

Outlook Mumbai is expected to witness an addition of approximately 6,500 - 6,800 rooms over the next three years primarily in locations such as Bandra Kurla Complex, Andheri, Worli, Malad,

Mahim and Powai. Mid-scale hotel rooms are expected to account for 48% of this supply, closely followed by up-scale hotels at 43%. There is likely to be short term impact due to the terror attacks, while the economic slowdown in general is likely to adversely impact hotel performance and profitability in the medium term.

Mumbai City Map
Vasai Creek Bhiwandi Kalyan Ambivli Bhiwandi Borivli Malad Goregaon Bhandup Jogeshwari Andheri Ville Parle Santacruz (E) Kurla (W) Khar (E) Bandra (E) Mahim MUMBAI Parel Shedung Village Chinchavli Belapur Thane Creek Vashi NAVI MUMBAI Badlapur Sanjay Gandhi National Park Dombivli Thane Ambarnath Ulhasnagar

Kolkhe Village Nariman Point Colaba

Upscale
Source: Cushman & Wakefield Research

Midscale

Budget

Upcoming Supply Zone

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NATIONAL CAPITAL REGION (NCR) India's capital, New Delhi, is a city of historic importance, a diplomatic hub (represented by embassies of 160 countries with large expatriate population) making it an attractive global tourist destination. Development of business districts and IT/ ITeS clusters in Gurgaon, Greater Noida and other parts of National Capital Region (NCR) has contributed to the growth of business travellers in this region. Delhi also acts as a major transit point for leisure destinations along the northern zone, such as Jaipur, Agra, Shimla-Musoorie, Haridwar-Rishikesh, KulluManali, etc. In the recent past the city has also been able to attract domestic and international tourists as a MICE destination. Government initiatives to develop heritage hotels, steps taken to promote tourism, improved connectivity, along with airport modernisation projects indicate a healthy growth for the hospitality sector in the region. With the upcoming Commonwealth Games in 2010, NCR is expected to witness an inflow of around
Bhagat Singh Park

800,000 international tourists and nearly 3.6 million domestic10 tourists. Hospitality Dynamics
l

While ARR in NCR witnessed annual increase of 15% in 2007-08, occupancy rates dropped from 80% to 74%.

The total room inventory in the NCR (Delhi, Gurgaon and Noida) is approximately 12,300 - 12,500 rooms, spread across 113 hotels. Most of theses are skewed towards the upscale category constituting 62% of the total rooms and are concentrated primarily in Connaught Place, Dhaula Kuan, Chanakya Puri and National Highway 8, followed by 24% in the mid-scale category in locations such as Connaught Place and National Highway 8.

l

ARR in the NCR grew by approximately 15% from INR 9,950 in 2006-07 to INR 11,480 in 2007-08 because of increased demand owing to the economic developments in Gurgaon and Noida. While the occupancy rates have declined from 80% to 74% in 2007-08 with addition of new supply in 2008.

Delhi (NCR) City Map
Libaspur Jahangirpuri Shalimar Bagh Pitampura St. Nagar Majlis Park Roop Nagar Raj Nagar Karawal Nagar Amar Colony GHAZIABAD

Rohini Inder Enclave Prem Nagar NH 10 Prem Nagar II Mangolpuri

Shakurpur Ashok Vihar Paschim Vihar Colony NH 10 Daya Basti Tagore Garden Kirti Nagar Vishnu Garden Hari Nagar Sagarpur Delhi Cantonment Palam Nangal Dewat Mahiapalpur NH 8 RamaKrishna Puram Safdarganj Development Area Vasant Kunj Old Rajender Nagar Pusa Hill Forest

Dharam Pura

Mohan Garden Najafgarh Sector - 16B Dwarka

Vikaspuri Janak Puri Uttam Nagar

NEW DELHI

Dilshad Garden Shahdara Sahibabad Rajgarh Industrial Area Colony Nirman Vihar Yamuna Mayur Vihar River Mayur Vihar Phase I NOIDA Friends Colony Jasola Vihar Okhla Vishwakarma Colony Pulpehladpur DLF Industrial Area Green Fields Colony Spring Field Colony Sector 19 Sector 16 Hazipur Village Aghapur

Sector 23

Defence Colony

NH 2 Lajpat Nagar Kalkaji Govindpuri

Sector 7 Khanpur Sangam Vihar

Rajokri Udyog Vihar Sector 5 GURGAON Sector 9 Sector 10B Sector 34 Sector 35 NH 8 Sector 39

Sushant Lok DLF Phase 5 Dera

Upscale
Source: Cushman & Wakefield Research

Midscale

Budget

Upcoming Supply Zone

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l

ARR (in INR)

9,000 6,000 3,000 0 2003-04 ARR Low 2004-05 2005-06 ARR High 2006-07 2007-08

60%

30%

Outlook Approximately 12,000 - 12,400 additional rooms are expected in NCR by 2011, of which nearly 38% is expected to be available in the up-scale category, followed by 34% in the mid-scale and the remaining in the budget category. Majority of this upcoming supply is likely to be concentrated in the business areas of Gurgaon and Noida. With a growing corporate demand for extended-stay (more than two weeks), service apartments are becoming a popular option in the city. NCR is expected to remain a robust market due to its importance as a commercial hub as well as the international exposure the city is likely to witness in light of the upcoming Commonwealth Games.

0 Occpancy

Source: CRISIL

Upcoming Room Supply - NCR
29% 37%

34% Upscale Midscale Budget

Source: Cushman & Wakefield

PUNE Pune is one of the fastest growing tier-II cities in India being an important industrial and automobile hub. Pimpri-Chinchwad is known as the industrial hub of Pune housing sectors such as IT, biotechnology, automobiles and heavy engineering. These factors have collectively created demand for quality accommodation for the business travellers. Pune is also an
Average Room Rate Vs. Occupancy - Pune
10,000 8,000
ARR (in INR)

educational hub with plenty of reputed colleges/universities thereby attracting large floating population. The State Government has been proactive and provided the necessary impetus for the above mentioned sectors to grow within the city. Good connectivity to Mumbai has also enabled commuters to access Pune via Mumbai. Hospitality Dynamics
l

90%
Occupancy Rate (%)

6,000 4,000 2,000 0 2003-04 ARR Low 2004-05 2005-06 ARR High 2006-07 2007-08

60%

30%

0 Occpancy

Of the existing room inventory of approximately 2,300 – 2,500 rooms, majority of the budget hotels are located in the CBD areas of Bund Garden Road, Dhole Patil Road, Tadiwala Road and the suburban Kalyani Nagar; while most up-scale hotels are located along Koregaon Park, Shivaji Nagar and the Airport. Of the existing total room inventory, midscale hotels comprise approximately 49%,

l

Source: CRISIL

INDIA REPORT | JANUARY 2009

Occupancy Rate (%)

Being the capital city, NCR has high inflow of corporate/ business travellers and they account for nearly 44% and 52% of occupants in the up-scale, mid-scale & budget category respectively. Leisure occupants are high in the mid-scale & budget category to the tune of 22%.

Average Room Rate Vs. Occupancy - NCR
15,000 12,000 90%

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followed by budget hotels accounting for approximately 32%.
l

Upcoming Room Supply - Pune
6%

In 2006-07 foreign business travellers accounted for approximately 46% of the total room utilisation in up-scale hotel category, followed by domestic business travellers at 35%.

51% 43% Upscale Midscale Budget

l

ARR increased sharply by 21% from INR 7,260 in 2006-07 to INR 8,770 in 2006-07 on account of limited supply to cater to the business travellers. On the contrary the occupancy rates dropped by 3 points to 78% in 2007-08.

Source: Cushman & Wakefield Research

Outlook Pune is expected to witness supply of approximately 3,700 – 3,900 hotel rooms in the span of next 3 - 4 years. This supply is expected to be available across 21 hotels located primarily

in areas such as Hinjewadi, Nagar Road and Koregaon Park. Approximately 51% of this supply would fall in the upscale category followed by 43% in the mid- scale category. Infrastructure improvement initiatives by the state government coupled with comparatively lower real estate costs, are expected to encourage the development of additional rooms in the near future to tap demand.

Pune City Map

Upscale
Source: Cushman & Wakefield Research

Midscale

Budget

Upcoming Supply Zone

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RESEARCH FINDINGS According to Cushman & Wakefield (C&W) Research estimates, the organised hotel industry constitutes approximately 72% based on the hotel categories considered for our study (5 star deluxe, 5 star, 4 star and 3 star). This translates to approximately 46,839 rooms as organised of the total inventory of 65,174 11 rooms across the eleven major cities considered for the study. Of the organised room inventory, approximately 64% is controlled by large hotel operators such as the Taj Group, the Oberoi Group, the ITC Group, Leela Hotels and Bharat Hotels, etc. Major international chains (also part of the organised section) such as the Hilton Group, the InterContinental Group, Hyatt International Hotels and Resorts, Marriott Hotels and Resorts, Le Meridien Hotels & Resorts, etc., are all represented by management or franchise contracts in India. Several others such as the US-based Four Seasons Hotels and Resorts, Hampton Inn Hotels & Suites, Amanda Hotels and Berggruen Hotels, etc., are all in the process of making an entry into India over the next few years, primarily through management contracts. NCR, Mumbai, Bangalore and Chennai together account for approximately 62% of the existing rooms under the organised section. At present, however, a shortfall of rooms has caused the average ARR to settle at approximately USD 200 per night, which is not far beyond ARR in Paris (USD 280) and Dubai (USD 290)12. Demand for rooms across various cities can be ascertained in connection with other closely related factors mentioned below besides the supply data: l Existing Room Inventory/ Stock l Supply, Occupancy and ARR l Human Resource Availability l Central Government Policies/ Local Administration l Investment for Infrastructure Development l Socio-Economic Climate Existing Room Inventory The existing room inventory table indicates the supply of eleven cities across the star categories

under consideration. The top four cities in the upscale hotel room inventory are NCR, Mumbai, Bangalore and Goa. NCR and Mumbai are hugely dependent on business travellers, both foreign and Indian corporations. NCR also has the maximum number of rooms in mid-scale category and is closely followed by Mumbai and Chennai. The availability of budget rooms is highest in Bangalore as the city is a frequented destination by both domestic business travellers and MICE tourists and also due to influx of new budget category hotels this year. Bangalore is followed by Goa and Chennai in budget room inventory. Supply, Occupancy and ARR With the growing importance of India in the global economic arena and the corresponding growth in in-bound and domestic travellers, many developers viewed hospitality sector as a lucrative asset class. To strengthen their position further, most have also associated with reputed hotel management chains in order to substantially boost their operations and increase their profitability. During 2008-11, additional 52,200 hotel rooms are expected to be available across the 11 cities considered for this study. Of this, approximately 28,012 rooms, representing around 54% of the total room supply of the study, belong to the up-scale category. However, due to sky rocketing land costs and rise in construction costs in recent times, only up-scale hotels are likely to provide substantial returns and reduce break-even period. Bangalore tops this list with the highest number of up-scale rooms (6,356), followed by NCR (4,600) and Hyderabad (3,554).
Existing Vs. Upcoming Room Supply
35,000 Number of rooms 30,500 25,000 20,000 15,000 10,000 5,000 0 Upscale Midscale Budget Upcoming Rooms till 2001 Existing Rooms till September 2008

Source: Cushman & Wakefield Research

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Based on our research, the demand for hospitality industry in the organised sector for the categories under consideration, is likely to grow in the range of 8-20% per annum from 2008 to 2011, facilitated by supply growth of approximately 12 – 39%per annum over the same period for the sample cities. NCR (20%), Mumbai (15%) and Bangalore (14%) are expected to witness a considerable compounded annual growth in demand from

2008 -2011. It can also be noticed that supply growth is phenomenal in Tier I & II cities like Pune, Bangalore, Hyderabad, Kolkata, NCR, and Ahmedabad. While the current occupancy rate in Chennai is 75%, the significant addition of supply in the coming years is likely to result in a decelerating demand by 3% Y-o-Y for the next three years, thereby directly impacting the occupancy rates.

City Performance Indicator
Hospitality Parameters ARR Occupancy Rate CAGR in room supply from 2008 - 20011 CAGR in room demand from 2008 - 20011 22% 30% 14% 12% 29% 12% 18% 27% 26% 16% 39% Ahmedabad Bangalore Chennai Goa Hyderabad Jaipur Kochi Kolkata NCR Mumbai Pune

10%

14%

-3%

9%

8%

12%

13%

12%

20%

15%

11%

Legend
Market Rising Market Falling
Source: CRISIL; Cushman & Wakefield Research

Market Stagnant, likely to Strengthen

Market Stagnant, likely to Weaken

Market Stagnant

Human Resource Availability The hospitality sector in India is likely to be one of the highest employment generators in 2009-10. The hotel industry requires skilled personnel and insists on their staff possessing basic certification in operation areas like housekeeping, front office, stores and accounts, F&B services, kitchen, engineering and management to name a few. Like any other service industry, the hospitality industry too banks on trained talent pool to offer flawless service to its guests. However, the availability and retention of this talent pool has become a prime agenda for the organised sector today. In
Annual Enrollment at Institute of Hotel Management (IHM)
B.Sc in Hospitality and Hotel Administration seems to be the preffered curriculum by the Industry Pune Mumbai Jaipur Goa Chennai Ahmedabad 0 PG Diploma 20 40 M. SC 60 80 B.SC 100 120 140 160 180

this study, C&W Research has emphasised on both talent availability and manpower demand for the cities under consideration. The Government recognises organisations, such as the Institute of Hotel Management (IHM) with its branches at Hyderabad, Delhi, Lucknow, Chennai, Mumbai, Jaipur and Ahmedabad, to name a few, that offer diploma and post graduation courses. Further, graduation courses in Hotel Management & Catering Technology (BHMCT) recognised by the All-India Council of Technical Education (AICTE) also churn out over thousand graduates each year.Various State Universities and private colleges across India also augment the overall enrolment into hospitality courses. Among the cities under consideration, Mumbai, followed by Bangalore, Chennai, Kolkata, Hyderabad and Delhi, emerge as the front runners offering supply of skilled human resource pool. Naturally these cities are likely to absorb the maximum trained manpower in their upcoming hotels. According to C&W Research, the ratio of additional room inventory to manpower requirement is 4:7 for up-scale hotels,

Diploma

Craftsmanship

Source: AICTE; Cushman & Wakefield Research

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while the same for mid-scale and budget hotels is 5:6. Thus the manpower requirement by 2011, based on the estimated room supply for the period under consideration would be approximately 77,000 – 79,000 jobs for the 11 cities and star categories under consideration. NCR followed by Bangalore, Mumbai and Hyderabad are likely to be future destinations for potential employment creation in the hospitality industry. As per Ma Foi Management Consultants, the hospitality sector in India is likely to be one of the highest employment generators in 2009-10.
Manpower: Demand Composition by 2011
Jaipur 3% Kolkata 5% Mumbai 13%

sanction of INR 447 million13. Maharashtra followed with close to 13 approved tourism projects with sanctions totalling approximately INR 284 million. In addition to the amount sanctioned for the enhancement of tourism development, state-wise tourism/hotel policies also play a crucial role in the development of new hotels by expediting processes such as land allotment, tax rebates and others. Amongst the states considered in our study, the hotel policies framed by the Government of Rajasthan and the Government of Uttar Pradesh were found to be most inclined towards fostering new hotel development in the categories under consideration. Presence of industry bodies such as Federation of Hotel & Restaurants Association of India (FHRAI) and the overall political stability across all 11 cities also factor in the critical mass formation in the hotel industry. E. Investment for Infrastructure Development (I) Foreign Direct Investment (FDI) Inflow Rapid growth in the hospitality sector may also be attributed to the increasing FDI inflow across Indian cities over the past few years. This has been a major contribution towards the development of the realty sector (commercial, residential, and retail segments) in the last one year. India's hospitality sector is expected to witness an investment to the extent of approximately USD 111 billion14 in the next two years. Marriott International, Hilton, InterContinental, Accor, Berggruen and Hampshire are a few global brands that have announced major plans of investing in India. For the regions under consideration, the states of Maharashtra & Union Territory of Dadra and Nagar Haveli have witnessed maximum cumulative FDI inflow across all sectors to the extent of approximately USD 2.43 billion during April 2000 to September 2008. The southern states of Karnataka, Andhra Pradesh and Tamil Nadu, as well as the western state of Gujarat have seen a cumulative FDI inflow in the range of USD 1.6 -1.8 billion for the same period. This is

Hyderabad 11% Cochin 2% Goa 6% Chennai 7%

Pune 7% Ahmedabad 3%

Bangalore 20%

Delhi (NCR) 22%

Source: Cushman & Wakefield Research

Government Policies Hospitality industry has received the necessary impetus largely based on participation from the government in terms of approval of tourism projects and allocation of the necessary funds. This is likely to provide a positive impact on the tourist inflow. To gauge the government participation Cushman & Wakefield Research considered the average amount sanctioned per project state-wise as well as the total number of projects sanctioned, during 2006-07 for the 11 cities under consideration. Based on the total number of projects sanctioned and the total amount sanctioned the average amount sanctioned per project was arrived at; Andhra Pradesh tops all states (INR 514 million) followed by Delhi (INR 480 million) and close behind was Uttar Pradesh (INR 476 million). Kerala received the maximum number (18) of tourism projects in 2006-07, with a total

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followed by Delhi, parts of UP as well as Haryana; predominantly the NCR shows a cumulative FDI inflow to the extent of USD 1.25 billion in the same timeframe15. Various developers/ investors have invested in the hospitality sector this year and there are several projects planned across India. Most of

these investments are through joint ventures between the developer/ investor and the hospitality group. The capital required for such projects is also raised through private equity funding. The table provided below captures few of the major investment deals in the hospitality sector in 2008.

Major Hospitality SPV Deals
Investor/ Developer Vipul Ltd Hospitality Group/ Entity Sarovar Hotels & Resorts Six Sense Spa, Thailand Carlson Hotels Worldwide Bangalore based Royal Orchid Hotels US based Wyndham Hotel Group Platinum Hospitality Services Marriott International Deal Type Tie-up Planned/ Invested Planned Investment Quantum (USD) 58 million Project Type 4 star hotel City Mohali, Amritsar, Ludhiana, Siliguri and Bhubaneshwar Greater Noida Zirakpur (Chandigarh) Across India

Jaypee Group E.C.C. Infrastructure Pte Ltd Parsvanath Hotels Ltd Royal Orchid Hotels Ltd (ROHL) Yatra Capital Limited Uppal group Clearwater Capital Partners

JV Tie-up

Planned Not Available

35 million Not Available

Resort Not Available

JV

Planned

116 million

3, 4 & 5 star hotels and serviced apartments 4 star hotel Hotel and serviced apartments 5 star hotels Business Hotel

Tie-up PE Tie-up

Not Available Invested Invested Invested

Not Available 15 million 116 million 49% stake in SPV

Across India Bangalore Gurgaon and Chandigarh Pune

SPV formed by BSEL PE Infrastructure Realty Ltd, Unity Realty and Developers Ltd and Kamat Hotels (India) Ltd Nitesh Estates Jalan Intercontinental Hotels Pvt Ltd Lemon Tree Hotels PE PE PE

City Group Property Ventures Yatra Capital Limited Japan's Shinsei Bank Limited and Kotak Realty Fund joint investment

Invested Invested Invested

100 million 7 million 30 million

Business Hotel Business Hotel Business Hotel

Bangalore Kolkata Not Available

Source: Cushman & Wakefield Research Exchange Rate: 1 USD = INR 50

(II) Infrastructure Factors Road Connectivity: According to 'Indian States at a Glance 2006-07, Performance, Facts and Figures'16; physical infrastructure such as road connectivity is an important determinant of economic growth. As per the Economic Survey 2003-04, roads carry 85% of passenger traffic and 70% of freight traffic in the country. Density of roads has been considered in each state (for the cities we have undertaken for our study) to understand the links that have been established throughout the area. The network of roads within the state are closely associated with the spread of development in the state. The NCR has the maximum number of National Highways passing through the region, followed by Bangalore and Ahmedabad. Similarly in case of distance covered, the National Highways passing through NCR ranks first followed by Bangalore and Chennai. As per the state-wise data pertaining to density of roads (road length/1,000 sq km of area) in the year 2002, Delhi (NCR) is way beyond other states in this respect.

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Commercial office space demand is expected to be approximately 180 million sq.ft. over the next three years which is likely to have a positive impact on hospitality demand as well.

Rail Connectivity : Rail routes help connect the state with other parts of the country as it is one of the most commonly used transport services in India. As per rail routes for each 1,000 sq.km within the regions considered by Cushman & Wakefield Research, NCR heads all the other states, followed by West Bengal. In terms of inter-connectivity amongst all the 11 cities taken for the study, the number of sub-stations in each of these cities was another crucial factor. Mumbai, followed by the NCR, came up as the highest ranking cities for these parameters. Air Connectivity : Privatisation in the aviation industry, coupled with the entry of private players (mostly budget airlines) and an open sky policy has enabled domestic airlines to fly on international sectors. All these factors combined have led to a stupendous increase in air travel within the country. Besides Delhi and Mumbai (accounting for nearly 49% of all passenger boarding and originations in the domestic sector and almost 65% of all international travel in India), Hyderabad and Chennai are other tier-II cities17 with good air connectivity among all the 11 cities considered for the study. Keeping in mind the need for such infrastructure, the government has initiated the development of 47 airports, including 40 brownfield and 7 greenfield projects across tier-I, II and III cities of India. Socio-Economic Climate (I) Gross State Domestic Product (GSDP) According to 'India States at a Glance 2006-07' the GSDP is the aggregate of the economic value of all goods and services produced within the geographical boundaries of the state during the financial year. It is a good indicator of the level of economic activity as it measures the total income generated within the state. Maharashtra (represented by Mumbai & Pune) ranks first on GSDP measured during 2005-06. This is followed by West Bengal (represented by Kolkata) amongst all the cities considered for our study. (II) GSDP for Manufacturing and Services Sector Manufacturing is no doubt one of the important economic activities for any state. Generally, a

state having a well-diversified industrial sector is likely to show more growth prospects over a period of time than others. State governments have taken several initiatives to attract investments from within the country as well as foreign funds/companies to stimulate the state economy. Maharashtra and Gujarat are two states that have witnessed significant growth in the manufacturing sector in recent past. The services sector is witnessing a robust growth across all regions with more than half of the country's GDP coming from this sector. Transportation, storage and communication, trade, hotels and restaurants, finance, banking and insurance, real estate as well as public administration are the activities included in the service sector. Trade, hotels and restaurants contribute approximately 30% share to the sector. Maharashtra has seen the highest growth in the service sector amongst the centres considered for this study followed by West Bengal. (III) Commercial Induced Business Demand Commercial induced business demand is one of the critical demand drivers for the hospitality sector. To asses this factor we have taken into consideration the office supply as well as absorption for the year 2008. It can be noticed that for the past 4-5 years the commercial office sector has been dominated by the exponential growth of the IT/ ITeS sector, across all prominent as well as Tier I and II cities in India. NCR (14 million sq.ft.), Bangalore (11 million sq.ft.) and Chennai (10 million sq.ft.) have witnessed a good quantum of commercial office space development during 2008. Absorption in the commercial office space was largely accounted by IT/ITeS, BFSI and telecom sector across the major Tier I & II cities with Bangalore witnessing the maximum absorption followed by NCR and Mumbai. Cushman & Wakefield Research estimates commercial office space demand to be approximately 180 million sq.ft. over the next three years which is likely to have a positive impact on hospitality demand as well.

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External Drivers and Industry Potential Analysis
High South 0; North 0; West 1; East 1 South 3; North 1; West 1; East 0

1

Tier-I and tier-II cities including Mumbai, NCR, Bangalore, Hyderabad and Chennai offer the best macro-level environment for hotel industry development in India, as they are supported by high industry growth and are best positioned to benefit from external growth drivers.

Mumbai NCR Bangalore Pune 2 Kolkata Chennai Hyderabad

3

External Drivers Scoring

Cochin Ahmedabad

Jaipur

Goa

4

5

Low

South 1; North 1; West 1; East 0

South 0; North 0; West 1; East 0

Industry Potential Scoring Low
5 4 3 2 1

High

Source: Cushman & Wakefield Research

Note: Industry potential is assessed by considering existing room inventory and upcoming room supply by 2011 across up-scale, mid-scale and budget category. External drivers is assessed by considering factors such as skilled Human resource availability in the hospitality sector, Government policies/ regulations related to hotel development, Investment for infrastructure development, and Socio-economic parameters as applicable in each of the cities.

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Estimated Supply of Hotels by 2011
Rank # City New Hotel Development by 2011 (Million sq ft) 12.9 11.8 7.9 6.8 4.6 4.3 3.5 3.0 2.0 1.6 1.5 59.9 Key Features of Development

1 2 3 4 5 6 7 8 9 10 11

NCR Bangalore Mumbai Hyderabad Pune Chennai Goa Kolkata Jaipur Ahmedabad Kochi

Highest number of mid-scale and budget rooms by 2011 amongst the 11 cities Highest number of up-scale rooms by 2011amongst the 11 cities Second highest number of mid-scale rooms by 2011 amongst the 11 cities after NCR Third highest in number of up-scale rooms by 2011 after Bangalore and NCR Moderate number of up-scale and budget rooms by 2011 Moderate number of upcoming up-scale and budget rooms by 2011 No budget rooms under development by 2011 No budget rooms under development by 2011 No budget rooms under development by 2011 Minimal development of up-scale and budget rooms by 2011 Minimal development of up-scale and budget rooms by 2011

TOTAL

Source: Cushman & Wakefield Research

The study indicates that tier-I and tier-II cities including Mumbai, NCR, Bangalore, Hyderabad and Chennai offer the best macro-level environment for hotel industry development in India, as they are supported by high industry growth and are best positioned to benefit from external growth drivers. Pune and Kolkata are also benefited by the external drivers but their strength as per industrial potential is comparatively lower than that of the cities placed in the high quadrant based on the two parameters. Leisure tourism continued to be the core driver for Goa while the city has not received much impetus from other sources like Government policies/regulation, infrastructure development, economic

drivers etc. in order to boost its hospitality sector. Industry potential is a dynamic factor susceptible to change and upcoming room supply is a major component in it. It can also be inferred that the external drivers (a combination of various socio-economic and political factors) are less susceptible to changes than the industry potential factors (which are restricted purely to the respective industry dynamics). However it is also true that prevailing economic situation, government policies (subject to the hospitality sector) and infrastructure initiatives will definitely have a bearing on the industry potential factors.

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CONCERNS & CHALLENGES The main roadblocks besieging the hospitality sector in India are procedural delays, inadequate infrastructure and shortage of quality manpower. A typical hospitality project requires numerous regulatory approvals, through imperious bureaucratic layers and multiple window clearances, with each approval stage consuming enormous amount of time. Aspects such as land acquisition and title conversions can take up time ranging from a few months to years. Besides land acquisition, getting suitable land parcels of adequate area at prominent locations at affordable rate and with clear titles is a challenge in itself. Further, variations in regulations across the different states make entry of new players into the hospitality sector, especially foreign giants a challenge. This makes it

crucial for new overseas investors to operate with a local partner (preferably with a portfolio of strategic sites) to handle various approvals for the project development. Exit becomes cumbersome for those developers who haven't entered a joint venture or have purchased land at a higher rate. Another major challenge faced by this sector in India is shortage of experienced managers and skilled staff, especially for premium projects. The demand for skilled manpower in the hospitality sector is ever increasing and with the sector already suffering considerable attrition, this is an area that requires special attention. An increase in Aviation Turbine Fuel (ATF) prices leading to hike in air fares may also discourage tourist flow to a certain extent, impacting hotel room demand.

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STATE RANKINGS In this exercise we have reviewed 20 states and union territories across India and have ranked them considering four broad parameters which are: 'Economic Drivers'; 'Demography'; 'Infrastructure' and 'Tourism'. The 20 states have been judged on various sub-parameters as applicable under the head

parameters. Top 3 states under each head parameter that have demonstrated consistent performance are expected to directly and indirectly aid growth of the hospitality industry over the long term in that region. Four different ranks have been followed in this exercise namely 'BEST'; 'BETTER'; 'GOOD' and 'AVERAGE'.

(A) Economic Drivers
States GSDP Current Prices (2005-06) GSDP Services Current Prices (2004-05) GSDP Manufacturing Current Prices (2004-05) Economic driver for hospitality (Services/ Industrial/ Tourism) v v v v v v v v v v v v v v v v v v v v Estimated number of households in 2005-06 (in 00's) v v v v v v v v v v v v v v v v v v v v Total Expenditure FDI Inflow from 04/00 05/08 (in crore)

Andhra Pradesh Bihar Chandigarh Delhi Goa Gujarat Himachal Pradesh Karnataka Kerala Madhya Pradesh Maharashtra Orissa Pondicherry Punjab Rajasthan Sikkim Tamil Nadu Uttar Pradesh Uttaranchal

v v v v v v v v v v v v v v v v v v v

v v v v v v v v v v v v v v v v v v v v

v v v v v v v v v v v v v v v v v v v v

v v v v v v v v v v v v v v v v v v v v

v v v v v v v v v v v v v v v v v v v v

v West Bengal GSDP – Gross State Domestic Product Source: Cushman & Wakefield Research Legend: v Better v Best

v Good

v Average

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(B) Demography
States Population (in 000's) Area (Sq.Km) Per Capita Income at current prices (2005-06) Number of Meeting & Convention centre as of 2008 v NA v v v v NA v v NA v v NA v v NA v v v v Employment in Non-agricultural sector - Urban area 2005( in 000 000's) v v NA v NA v NA v v v v v NA v v NA v v NA v

Andhra Pradesh Bihar Chandigarh Delhi Goa Gujarat Himachal Pradesh Karnataka Kerala Madhya Pradesh Maharashtra Orissa Pondicherry Punjab Rajasthan Sikkim Tamil Nadu Uttar Pradesh Uttaranchal West Bengal NA – Not Applicable Source: Cushman & Wakefield Research

v v v v v v v v v v v v v v v v v v v v

v v v v v v v v v v v v v v v v v v v v

v v v v v v v v v v v v v v v v v v v v

(C) Infrastructure
States Number of NH'S (Kms) Number of SH's (Kms) Length of railway lines (Kms) 2003-04 New Airports Modernisation Modernisation Air traffic Planned of city- side by of air side by passengerprivate players AAI international: April 07 Mar 08 (In 000 000's) v NA NA v NA v v v v v NA NA NA v v NA v NA NA NA NA NA v NA v v v v v NA v v NA v v v NA v v NA v NA NA NA NA NA v NA NA NA NA NA v v NA v NA NA v NA v NA v v NA v NA NA v NA NA v NA NA v Air traffic passenger domestic: April 07 Mar 08 (In 000 000's) v v NA v v v NA v v v v v NA NA v NA v v v v

Andhra Pradesh Bihar Chandigarh Delhi Goa Gujarat Himachal Pradesh Karnataka Kerala Madhya Pradesh Maharashtra Orissa Pondicherry Punjab Rajasthan Sikkim Tamil Nadu Uttar Pradesh Uttaranchal

v v v v v v v v v v v v v v v v v v v

v v NA NA v v v v v v v v v v v v v v v

v v v v v v v v v v v v v v v NA v v v

v v v v West Bengal NA NA NH – National Highways; SH – State Highways; AAI – Airport Authority of India; NA – Not Applicable Source: Cushman & Wakefield Research Legend: v Better v Best v Good v Average

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(D) Tourism
States Number of foreign tourists - 2006 Number of domestic tourists - 2006 v v v v v v v v v v v v v v v v v v v Number of tourist destinations in the state v v v v v v v v v v v v NA v v v v v v v Average Amount Sanctioned per tourism project (INR in '00000) v v v v NA v v v v v v v v v v v v v v v UNESCO declared heritage sites 2008 v v NA v v v NA v NA v v v NA NA v NA v v v v

Andhra Pradesh Bihar Chandigarh Delhi Goa Gujarat Himachal Pradesh Karnataka Kerala Madhya Pradesh Maharashtra Orissa Pondicherry Punjab Rajasthan Sikkim Tamil Nadu Uttar Pradesh Uttaranchal

v v v v v v v v v v v v v v v v v v v

West Bengal v v NA – Not Applicable UNESCO - United Nations Educational, Scientific and Cultural Organization Source: Cushman & Wakefield Research Legend: v Better v Best v Good

v Average

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RESULTS OF RANKING EXERCISE Maharashtra tops the list on all the four parameters. It holds the highest position under Economic Drivers, taking the highest rank among other states in areas such as GSDP at current prices, GSDP- Services/ GSDPManufacturing at current prices, estimated number of households and FDI Inflow. The other states to follow under Economic Drivers are Tamil Nadu and Karnataka respectively. On the demographic front Maharashtra ranks the highest in terms of area, population, number of convention centres etc. and is followed by Tamil Nadu and Andhra Pradesh. Maharashtra holds the highest position in terms of

infrastructure amongst the other states followed by Uttar Pradesh and Tamil Nadu. However, Uttar Pradesh has the highest number of national and state highways passing through the state as well as the longest railway lines. Maharashtra tops the list in terms of tourism activities recording the highest air traffic passenger – international and domestic, number of foreign tourists, number of tourist destinations and the number of UNESCO declared heritage sites. Delhi and Karnataka hold second and third ranks respectively. To conclude, states which have been ranked consistently well on the broad categories are more likely to support developments in the hospitality industry.

Cumulative Ranking of Top 5 States
Rank # 1 2 3 4 5 Economic Drivers Maharashtra Tamil Nadu Karnataka Gujarat Andhra Pradesh/ West Bengal Rank 1 2 3 4 5 Demography Maharashtra Tamil Nadu Andhra Pradesh Uttar Pradesh Delhi/ Rajasthan Rank 1 2 3 4 5 Infrastructure Maharashtra Uttar Pradesh Tamil Nadu Gujarat Karnataka Rank 1 2 3 4 5 Tourism Maharashtra Delhi Karnataka Tamil Nadu West Bengal

Source: Cushman & Wakefield Research

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CONCLUSION The current global economic scenario, together with the slowdown in the US economy and volatility in our stock markets, is likely to impact investment opportunities across emerging countries like India and China. Other related factors like a skyrocketing inflation rate (that touched a 13-year high of nearly 12% in August 2008), multiple fluctuations in RBI's CRR and Repo rates, stock market turning volatile, etc. are affecting the Indian economy in recent times. It is then little surprising that the realty market too has been affected to a large extent as is evident from rising construction costs, delays in project completion schedules and developers adopting a cautious approach. These factors have resulted in staggered supply across commercial, residential, retail and hospitality projects alike. The hotel industry in general continued to witness a rise in room rates, albeit at a much slower rate in comparison to the corresponding period in 2007. As the market softens, hotels may be expected to adopt more sensible pricing strategies to maintain current occupancy levels. In light of the current economic climate, almost all companies are looking at means to control travel expenditure and are increasingly travelling 'smarter' -- completing one day meetings, accommodating employees at company guest houses etc. At the same time trends indicate that clients who traditionally booked five star hotel rooms, are now reconsidering their travel policies and moving to four star hotels in order to maximize savings. Occupancy rates across most tier-I, II and III cities have fallen or stabilised in 2007-08 with Jaipur and NCR witnessing a drop of 9% and 8% respectively due to the current prevailing economic situation (domestic and global) and the blasts across the country. On the other hand cities like Goa, Ahmedabad and Kolkata have managed to have positive growth in occupancy rates in 2007-08. The overall tourism and hospitality industry in India is likely to be largely influenced with rising domestic travel. This can be one of the triggers to support further hotel development across the country. In 2007, the proportion of domestic tourist inflow in comparison to international tourists stood in the ratio of 91:9. Domestic tourists are also likely to continue to account for the major proportion of tourist inflows in the coming years.

However, over the past couple of years the Indian hospitality sector has stepped up its growth momentum and has turned proactive in minimising the segment's supply-demand mismatch. WTTC is working along with MoT in international marketing and improving the brand image of the country with respect to tourism and hospitality sector. UNDP (United Nation Development Programme) in collaboration with the Indian Government has decided to provide assistance for capacity building of local communities of 36 rural tourist sites in India. As domestic and international travellers get more apprehensive about security in key Indian cities, occupancy rates and room tariffs are likely to drop in the short term. This can be substantiated by the recent official estimates released by MoT stating the drop in overseas visitors to the country in November 2008 by 2.1 percent as compared to November 2007. Over the next few years, occupancy rates are expected to witness a fall in light of the current economic scenario as well as the anticipated over supply situation in a select markets. To tide over the current drop in business, few of the star category hotels have taken to offering 10 to 30% discounts in the room tariffs so as to attract domestic and international tourists; this trend could well continue in the coming months if the need be. The upcoming hotel rooms are likely to witness tremendous growth during 2008-11 especially in the mid-segment sector, for the 11 cites considered for the study. Up-scale hotels are expected to continue to dominate among the three categories chosen for the study. Domestic and international hotel brands are entering markets with new creative ideas and are adopting new business models and ownership structures for the development of fresh properties. In the coming years, more hotels utilising mixed-use development formats are likely to be developed in order to capitalise the demand for commercial asset classes, such as office and retail. While there can be no control over the projected supply for any market, the ARR's can certainly be moulded to maintain or capture demand. This is the time when major hospitality players might decide to hold or fold their rates. With the delivery of the planned supply, an over supply situation would be certain and Darwin's theory of survival, very applicable.

This is the time when major hospitality players might decide to hold or fold their rates.

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Content Sources 1 2 3 4 5 6 7 8 9 Source: Press Information Bureau, Government of India Source: Ministry of Tourism and Culture Source: Property Report Asia Source: WTTC Source: http://www.itftgroup.com/travel.php#inindia Source: Pre-budget Memorandum of Hotel Industry 2007-08 Source: http://www.itftgroup.com/travel.php#gdp Source:http://www.ibef.org/artdispview.aspx?in =74&art_id=19777&cat_id=120&page=1 Source: Ma Foi Management Consultants Source: Ministry of Tourism, Annual Report 2007-08

10 Source: indiastreet.com 11 We have assumed that all the 5 star & 5 star deluxe hotels, 40% of the 3 star hotels, 60% of the 4 star hotels belong to the organised sector. 12 Source: www.asiatraveltrips.com/news08/1411-DubailVistorArrivals.shtml 13 Source: India Tourism Statistics, 2006 14 Source: Ma Foi Management Consultants 15 Source: http://dipp.nic.in/fdi_statistics/india_fdi_index.htm 16 Source: Indian States at a Glance 2006-07, Performance, Facts and Figures 17 Source: Tier I cities – Bangalore, Delhi and Mumbai Tier II cities – Kolkata, Chennai, Pune, Hyderabad and Ahmedabad Tier III cities – Bhopal, Chandigarh, Amritssar, Lucknow, Agra, Jammu,Varanasi, Patna, Indore, Jaipur, Udaipur, Bhubaneswar, Coimbatore, Panjim, Gulberga/ Shimoga,Vishakhapatnam, Mangalore. Hassan, Kochi, Rajkot,Vadodara, Gantok, Guwahati, Kohima, Dimapur, Imphal, Agartala, Raipur, Khajuraho, Ranchi, Trichy, Madurai, Agatti (Lakswadweep Islands), Trivandrum, Port Blair, Halwara and Dehradun Other Sources FH&RA India – Indian Hotel Industry Survey 2006-07 HVS - Hotels in India - Trends and Opportunities 2008

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ABOUT CUSHMAN & WAKEFIELD HOSPITALITY
Cushman & Wakefield Hospitality provides a wide range of consulting services for hotels, resorts, serviced apartments and mixed-use developments. We specialise in operations analysis, market research, demand analysis and have developed a detailed understanding of the dynamics of the accommodation industry. This allows us to complete comprehensive market demand forecasts, which form the base for market and business assessments, financial projections and valuation services. We also advise on the development of new hotels, working with developers, architects and other development team members to conceptualise the optimal product for a particular site. Through the integration of consulting and valuation services with design management and project direction services, we can provide our clients with a full suite of services from site analysis and project conception, through market analysis and financial evaluation, to construction administration and project delivery. Our services include: Market Studies, Valuation Services, Property Development, Revenue Management, Sales & Marketing, Asset Management, Technology Solutions as well as Shared Ownership Solutions.

For more information on Cushman & Wakefield Hospitality contact:

Akshay Kulkarni Director – South Asia Cushman & Wakefield Hospitality +(91 22) 2281 3317/ 19/ 20 akshay.kulkarni@ap.cushwake.com

Authors of the report:

Shaila Vivek Research & Business Analytics Group shaila.vivek@ap.cushwake.com Digbijay Das Research & Business Analytics Group digbijay.das@ap.cushwake.com Kanika Vaid Research & Business Analytics Group kanika.vaid@ap.cushwake.com

About Research & Business Analytics Group Cushman & Wakefield is committed to collation of high quality base data and assembling detailed statistics for the major India markets on a regular basis. This commitment to quality research provides a strong foundation for all of our services. Customized, analytical reports are also developed to meet the specific research needs of owners, occupiers, and investors. Through the delivery of timely, accurate, high quality research reports on the leading trends, markets and business issues of the day, we aim to assist our clients in making pertinent and competitive property decisions. In addition to producing regular reports such as global rankings and local quarterly updates available on a regular basis, Cushman & Wakefield also provides customized studies to meet specific information needs of owners, occupiers and investors. For more information, contact: Tanuja Rai Pradhan Associate Director - India Research & Business Analytics Group +(91 124) 469 5555 tanuja.pradhan@ap.cushwake.com

Cushman & Wakefield is the world's largest privately held commercial real estate services firm. Founded in 1917, it has 227 offices in 59 countries and more than 15,000 employees. The firm represents a diverse customer base ranging from small businesses to Fortune 500 companies. It offers a complete range of services within four primary disciplines: Transaction Services, including tenant and landlord representation in office, industrial and retail real estate; Capital Markets, including property sales, investment management, valuation services, investment banking, debt and equity financing; Client Solutions, including integrated real estate strategies for large corporations and property owners; and Consulting Services, including business and real estate consulting. A recognised leader in global real estate research, the firm publishes a broad array of proprietary reports available on its online Knowledge Center at cushmanwakefield.com/knowledge.

For more information on Cushman & Wakefield, contact : Anurag Mathur Managing Director, India +(91 80) 4046 5555 anurag.mathur@ap.cushwake.com

©2009 Cushman & Wakefield All Rights Reserved

Disclaimer This report has been prepared solely for information purposes. It does not purport to be a complete description of the markets or developments contained in this material. The information on which this report is based has been obtained from sources we believe to be reliable, but we have not independently verified such information and we do not guarantee that the information is accurate or complete.

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