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India Hotels Outlook

Impact of COVID-19

India Hotels Outlook: Impact of COVID-19 1

The hotel growth cycle abruptly ended after 5 years
of consecutive RevPAR growth

The markets were set on a path to recover the grounds lost due to the past disruptive events and supply overhang as the year
2020 started on a positive note with strong performances in the first two months. The onset of COVID-19 and the subsequent
travel restrictions and nation-wide lockdown, however, has had an unprecedented impact on the sector.

RevPAR
40.0%

35.0%

30.0%

25.0%

20.0%

15.0%

10.0%

5.0%

0.0%

-5.0%

-10.0%
2015 2016 2017 2018 2019 1H2020

INCREASE DECREASE Source: STR

India Hotels Outlook: Impact of COVID-19 2

Unprecedented downturn – Indian hospitality sector

Organised Semi Organised Unorganised

INR 40,309 Cr INR 8,379 Cr INR 41,126 Cr
REVENUE LOSS

31.6
percentage points

OCCUPANCY

57.8%

REVPAR

Estimated Total Revenue 2019 Estimated Total Revenue Loss 2020

INR 1,58,113 Cr INR 89,813 Cr

Note: HVS Estimate as on April 2020 Source: HVS Research

India Hotels Outlook: Impact of COVID-19 3
Where do we go from here?

India Hotels Outlook: Impact of COVID-19 4

Prior cycles did not witness severe erosion
in demand from disruptive events

Immediately post 2001 and 2008 crises, demand grew at strong rates following short term impacts.
Demand in the 2010 decade grew at 5.3% CAGR as against 10.8% CAGR in the 2000 decade.

30.0% Demand Change%

CAGR 2000-2009: 10.8% CAGR 2010-2019: 5.3%
25.0%
2000 DECADE 2010 DECADE
20.0%
Change in Demand

15.0%

10.0%

5.0%

0.0%

-5.0%

-10.0%

-15.0%
2005
2003
2001

2002

2004

2007
2006

2009
2008
2000

2011

2012

2014

2017
2016

2019
2018
2010

2015
2013
Sep 2003 Sep ADR
2001 (SARS) 2008 Pick-up
(09/11) (GFC)

Source: HVS Research & STR

INCREASE DECREASE India Hotels Outlook: Impact of COVID-19 5

Prior cycles supply growth has varied with
a significant slowdown in the current decade

Supply growth in the 2010 decade has been substantially lower at 51% as compared to a 158% growth in inventory in the 2000
decade.

Supply Change%

30.0%
CAGR 2000-2009: 10.3% CAGR 2010-2019: 4.1%
25.0% 2000 DECADE 2010 DECADE
Change in Supply

20.0%

15.0%

10.0%

5.0%

0.0%
2005
2003
2001

2002

2004

2007
2006

2009
2008
2000

2011

2012

2014

2017
2016

2019
2018
2010

2015
2013
Sep 2003 Sep ADR
2001 (SARS) 2008 Pick-up
(09/11) (GFC)

Source: HVS Research & STR

INCREASE India Hotels Outlook: Impact of COVID-19 6

Supply profile of major markets has transformed

Pune, followed by Bengaluru and Hyderabad, the tech epitomes of India, have witnessed the fastest growth in supply over the
last two decades. Bengaluru has risen from being the 5th largest market in the country to the 2nd biggest.

2000 2019

35000
6.3
Times
30000 5.7 14.3
Times
Times
25000
No. of Rooms

6.4
20000 Times
7.3
Times 11.1
Times 15.6
15000
Times
7.3
10000 Times

5000

0
Mumbai Delhi NCR Bengaluru Chennai Goa Hyderabad Kolkata Pune

Source: HVS Research & STR

India Hotels Outlook: Impact of COVID-19 7

Supply profile of major Asian markets

India, however, continues to have the lowest proportion of branded hotel rooms compared with major Asian hotel markets.
Shanghai and Beijing are nearly 10 times the size of our major hotel markets.

300,000
269,269
250,591
250,000
No. of Hotel Rooms

200,000

150,000 137,748

95,040
100,000
72,541 75,147
61,730

50,000
29,499 24,667 25,842

-
Delhi NCR* Mumbai Bengaluru Singapore Jakarta Hong Kong Tokyo Shanghai Beijing Bangkok

Source: HVS Research & STR

India Hotels Outlook: Impact of COVID-19 8

Prior cycles Occupancy change

Occupancy growth rates in the 2010 decade has been lower than the 2000 decade on account of supply absorption.
Since 2013, occupancy growth has recovered much of the lost ground until it was hit by the COVID-19 impact.

25.0% Average Growth 2000-2009: 0.6% Average Growth 2010-2019: 0.7%

2000 DECADE 2010 DECADE
20.0%
Change in Occupancy

15.0%

10.0%

5.0%

0.0%

-5.0%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Sep 2003 Sep ADR

2001 (SARS) 2008 Pick-up
(09/11) (GFC)

Source: HVS Research & STR

INCREASE DECREASE India Hotels Outlook: Impact of COVID-19 9

Prior cycles Average Rate change

The industry witnessed its largest rate growth in the 2000 decade @ 6.3% CAGR as the country’s economy opened post
liberalization and demand outstripped supply by a significant margin. Apart from 2017, average rate growth, post the GFC crisis,
has been limited in the 2010 decade growing at a CAGR of 1.7%.

CAGR 2000-2009: 6.3% CAGR 2010-2019: 1.7%

100.0%
2000 DECADE 2010 DECADE
80.0%

60.0%
Rate Growth

40.0%

20.0%

0.0%

-20.0%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Sep 2003 Sep ADR

2001 (SARS) 2008 Pick-up
(09/11) (GFC)

Source: HVS Research & STR

INCREASE DECREASE India Hotels Outlook: Impact of COVID-19 10

Outlook for demand

CORPORATE MICE LEISURE

Corporates are expected to put
restrictions on non-essential employee
travel. Even for the essential employee
travel, allowance limits are likely to be
reduced.
Senior Management travel also expected
to reduce in the short term.
The number of International Corporate
MICE travelers will be significantly
reduced.
A large number of weddings planned at
international destinations have
relocated to domestic destinations. The
size of the weddings will be reduced.
Domestic tourists will be major demand
drivers. ‘Revenge’ travel witnessed in
China could foster among Indians too.
The ~25 Mn outbound Indian travelers
will also be an attractive segment for
the leisure market.

Business Midscale & Economy Hotels to recover faster than Luxury & Upscale counterparts.
Leisure Luxury & Upscale Hotels to recover quicker than the Economy & Midscale counterparts.

India Hotels Outlook: Impact of COVID-19 11

Outlook for Supply growth

As of May 2020, supply was forecast to increase at a CAGR of 2.8% during the 2020-2024 period. Given the recent events, supply
growth is now expected to be lower, and at a slower pace, than previously anticipated.

Under-construction Muted market Financing challenges Changes in market Some properties may
projects may face conditions will likely on account of conditions may close on account of
delays on account of lead to delayed negative sentiment render proposed financial stress and
labour shortages and openings; some for the sector is likely projects infeasible; as not reopen for an
issues pertaining to projects may be on to delay projects. a result, some extended period of
vendors and supply hold pending projects may be time, resulting in
chain. recovery. postponed or negative supply
canceled. growth.

Some properties are likely to be repurposed to other asset classes such as Hospital, Student Housing,
and Co-Living.

India Hotels Outlook: Impact of COVID-19 12

We anticipate Occupancy & ADR to reach pre-COVID levels
by 2022 & 2023 respectively

The following forecasts for the India hotels industry reflects the current outlook of market participants, assuming recovery from
COVID-19 begins in the second half of 2020.

Average Rate RevPAR Occupancy 2020 Change %

₹ 6,000 80.0%
67.0% 68.0%
₹ 5,000
65.4% 66.2% 65.5% 70.0% -19.1%
57.5% ADR
60.0%
₹ 4,000
50.0%

₹ 3,000 34.5% 40.0%

-31.6
percentage points
30.0%
₹ 2,000 Occupancy
20.0%
₹ 4,850

₹ 6,448
₹ 4,834

₹ 4,384
₹ 5,830

₹ 3,794
₹ 5,997

₹ 3,967

₹ 5,793
₹ 2,782
₹ 1,675
₹ 3,812

₹ 1,000

₹ 4,114
₹ 6,141
10.0%
-57.8%
₹0 0.0% RevPAR
2018 2019 2020F 2021F 2022F 2023F 2024F

Demand
Change 3.3% 4.2% -47.2% 75.5% 17.9% 5.0% 2.7%
Supply
Change 3.0% 3.0% 1.2% 5.3% 3.6% 2.6% 1.2% Source: HVS Research

India Hotels Outlook: Impact of COVID-19 13

 Current forecasts in a historical context

‘Years to recover’ reflects the time from the event year to levels immediately prior to the major event. Both Occupancy and ADR
will recover much quicker in this cycle due to limited supply growth subject to vaccine being in place not later than 2021.

Years to Recover

09/11 (2001) GFC (2008) COVID-19 (2020) #

Never Recovered

Never Recovered

Never Recovered
3 3

2 2 2

Occupancy ADR RevPAR

# HVS Projections Source: HVS Research

India Hotels Outlook: Impact of COVID-19 14

14
 How will markets & hotels be affected?
More Vulnerable
• Full-service hotels, dependent on
group business
• Gateway markets that depend on
international travel
• “Fly to” markets that depend on air
travel
• Independent non-affiliated properties
• Upscale & Luxury Hotels which have
over 50% international business
• International leisure destinations with
high FIT or GIT movement
15
Secondary and tertiary markets are
expected to hold up better.
Gateway and the top 10 metro
markets will witness short term
volatility.
Motorable Leisure markets could
see a quicker rebound.
Less Vulnerable
• Hotels that primarily rely on transient
segments
• Economy and midscale business hotels
• Suburban, small metro town properties
• “Drive-to” resorts
• Extended-stay hotels
• Drive-to markets, which can be
expected to recover faster than those
dependent on air travel
• Properties affiliated with strong brands
India Hotels Outlook: Impact of COVID-19 15
Final thoughts

This cycle could be unique in terms of the We anticipate Occupancy and ADR to reach
1 rapid and dramatic decline of demand, like 4 Pre-COVID levels by 2022 and 2023
never seen before, but there could be some respectively, with supply growth expected to
similarities to other cycles. remain dormant.

Supply growth is expected to slow Upscale/Luxury Leisure and Branded

2 significantly, as new or under constructions 5 Economy/Mid-market business hotels are
projects are delayed or abandoned and expected to lead the recovery growth in the
several highly leveraged assets are shutdown. sector.

The pace of immediate demand growth is The transaction market will witness high
3 corelated to the level of stimulus infused by 6 activity due to likely softening in values and
the government to revive growth, besides the increased availability of stressed assets.
availability of a cure and vaccine

India Hotels Outlook: Impact of COVID-19 16

About HVS

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India Hotels Outlook: Impact of COVID-19 17
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For any queries, please reach out to Our Services

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India Hotels Outlook: Impact of COVID-19 18