RESEARCH

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Q4 2008

INDIA HOTEL
Review

Knight Frank

HIGHLIGHTS
! The Indian hotel industry, a significant stakeholder of the tourism sector, witnessed the trickle down effect of the global crisis. ! Foreign tourist arrival growth was marginal during Jan-Oct 2008 and recorded at 4.32 million as compared to 3.95 million during the same period in 2007. ! The impact of the recent terrorist attack on Mumbai city was adversely felt in the Mumbai hotel industry as well as other markets. ! The growth of foreign tourists inflow pegged at around 15-16% in the beginning of 2008, is now expected to be around 10%. ! Over 42,000 new rooms are expected to be added to current inventory across 10 cities by end-2012.

Q4 2008

INDIA HOTEL
Review

EDITORIAL
Figure 1

second week of August. However, in the past few months the tight monetary policy of the government has been able to tame the inflation rate considerably. On the external trade front, exports have declined for the first time in the month of October in the last seven years and the Rupee has depreciated (against US dollar) more than 25% during the last 5-6 months. In a nutshell, it can be said that the financial sector shocks, depressed business confidence and slowing consumption

Pune, Goa, Bengaluru, Hyderabad, Chennai and Kochi. The study also revealed that till Q3 2008, the average occupancy rate across these ten cities in the 5D, 5-star and 4-star categories was around 68% and the Average Room Rate was about Rs.7,476. Significantly, it was observed that occupancy rates declined by around 10-15% across the premium segment of hotels since the past one year, while the budget hotels maintained their previous levels. In addition to the cascading effects of the ongoing economic crisis, the tourism sector in India was further hit by the terrorist attacks in Mumbai. The attack has had a direct impact on this sector since it has targeted premium category hotels and foreigners. The period October-February being the peak time for the tourism sector in India, even a short term effect of the attack is likely to have a substantial impact on the revenue generation of the hotel industry. Industry experts had pegged the growth of foreign tourists' inflow at around 15-16% in the beginning of 2008. However, due to the economic crisis and terror attack, the year-on-year growth of the number of foreigners is currently expected to be around 10%. Given the current economic scenario as well as the uncertainty brought about by the recent attacks on foreigners, the Indian hotel industry appears to be on shaky ground. While most of the premium hotels faced room cancellations after the Mumbai attacks, the dips in occupancy rates are expected to be of short term. As a matter of fact, the global economic turmoil did not have much impact on the ARRs, as evident in this report. Major hotel players are expected to go ahead with their projects, while keeping a low profile on their expansion plans. Besides, a number of them have ventured into serviced apartments, which is touted to be the most preferred segment to attract long-stay business travellers. The revival of the country's economy shall dictate the way ahead for the hotel industry in the next 12-15 months.

Distribution of supply by 2012*
Chennai 9% Kolkata 8% Bengaluru 12%

NCR 13% Hyderabad 15% Mumbai 14%

Kochi 4% Jaipur 3% Goa 7%

demand have dented the country's economy to a significant level. Meanwhile, the hotel industry, which is a significant stakeholder of the Indian tourism sector, witnessed the trickle-down effect of the global crisis as well. The year 2007 had been a successful year for the industry as it benefitted extensively from the growth of the country's economic activities. Enhanced business and leisure travel from abroad helped India to record 5.08 million of foreign tourists in 2007, an increase of 14.3% over 2006. With more than 9% GDP growth in 2007, the economy looked buoyant with new job opportunities, rise in salary and disposable income and a high growth trajectory. Of late, the effects of the global economic meltdown and downturn of the Indian economy are visible on the tourism sector. Foreign tourist arrivals during the period January-October 2008 was recorded at 4.32 million as compared to 3.95 million during the same period in 2007, indicating moderate growth of 9.4%. Notably, a large proportion of the foreign tourists who came to India in 2007 belonged to the United States and Britain, those being amongst the hardest-hit countries in the global economic slowdown. Most of the domestic companies have drastically reduced their conferences/conventions and business trips in order to reduce pressure on their margins. According to Knight Frank Research, there are currently close to 42,022 rooms across the 5-star Deluxe, 5-star, 4-star and heritage categories in planning or under-construction in the cities of NCR, Jaipur, Kolkata, Mumbai,

Pune 15%

* Supply includes upcoming rooms in 5-star Deluxe, 5-star & 4-star hotels Source: Knight Frank Research

The initial slowdown of the US economy during the end of 2007 and early 2008 did not raise much concern among the policy makers and economic managers of the country. It was argued that the Indian economy would be relatively immune to this crisis because of its “strong fundamentals” and apparently well-regulated banking system. However, with the beginning of FY 09, the major economies in Europe and Japan started declining, giving out strong signals of global financial and economic crisis. In later developments, fast growing countries like India and China were also affected by the heat of this crisis. The extent of the impact of the economic slowdown on the growth of the Indian economy can be gauged by the fact that it's growth has declined to 7.6% in the second quarter (July -September) of FY 09 as compared to 9.6% recorded in the same period during last year. The official growth forecast for FY 09 has been revised downward to 7%. The IT/ITES, real estate and the financial sectors, which in the past had been primarily responsible for driving economic growth, are the worst hit with substantial reduction in business activities and high lay-offs. The manufacturing sector has experienced dismal growth and the equity markets have hit multi-year lows. Domestic inflation touched a high of 12.63% in the

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NATIONAL CAPITAL REGION (NCR)
Figure 2

Overview
A niche combination of luxury and sophistication has led the NCR to become one of the prime destinations in the country for leisure and business tourism. The NCR, including the national capital New Delhi and the satellite towns of Faridabad, Gurgaon, Noida and Ghaziabad, form a substantial part of India's key economic zones. Factors such as its rich history, excellent national and international connectivity and the access it provides to the northern hill stations render the region one of the most favoured destinations for trade, commerce and tourism. Rapidly improving infrastructure, widespread economic activity, availability of skilled manpower and decentralisation of urban development policymaking have in recent times triggered growth in the region. Further, the construction of the DND Expressway and Gurgaon Express Highways, phased completion and rapid spread of the Delhi Metro Project and growth of the IT/ITES, automobile and pharmaceuticals sectors have strengthened the economic and business sector, resulting in increased business travel to this region. Due to the NCR's booming industrial and trade activity and proximity to the northern hills, the region not only witnesses a lot of transitional tourists, but also plays host to a

infrastructure and well established trade and commerce sector differentiate it from India's other metro cities. A major proportion of hotel business generated in the NCR comprises international travellers, and about 70% of the total foreign travellers to the NCR are business travellers.

Current Scenario
Over the last few years, tourism in the NCR has grown to include heritage tourism, adventure tourism, medical tourism and ecotourism. Various segments, including domestic and international corporate travellers, bureaucrats, sportsmen and transitional tourists form the main clientele for the hospitality sector. New Delhi, as the nation's capital, regularly hosts various political meets that augment the demand for hotel rooms in the region. Healthy industrial growth and better infrastructure, both of which are conducive for trade events, have boosted business traffic and demand for business hotels. The NCR has witnessed a considerable increase in the year-on-year number of foreign and domestic travellers. The compounded annual growth rate for foreign and domestic travellers to the NCR region has been 12.7% and 22% respectively since FY 2002-03. Demand pressure in the region has been encouraging developers to venture into new hotel projects.

Movement in ARR (5D,5,4-star Hotels)
12,000

10,000

8,000

Rs.

6,000

4,000

2,000

0 2006 Q3 2008 2004 2005 2007

Source: Knight Frank Research

Figure 3

large number of foreign and domestic business and leisure travellers. Factors such as the NCR's central location, state-of-the-art

Occupancy Rate (5D,5,4-star Hotels)
80 78 76 Percent(%) 74 72 70 68 64 2006 Q3 2008 2004 2005 2007

Source: Knight Frank Research

Trident, Gurgaon

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Q4 2008

INDIA HOTEL
Review

Currently, the total room inventory across the NCR is approximately 11,000 rooms. Out of the existing inventory, 63% of the rooms are in the 5-star Deluxe and 5-star category, 15% are in the 4-star category and 22% in the budget segment. The growth in the number of foreign and domestic business travellers to the region is reflected in the growth in room supply in the 4-star category. Two hotels in this category, namely The Ramada Plaza, with a room inventory of 445 rooms, and The IBIS Hotel, with a room inventory of 217 rooms, became operational during 2008. During the early part of 2009, the Claridges Group is expected to introduce an additional supply of 240 rooms in the 4-star category in SurajKund. Between FY 2004-05 and FY 2006-07, the average occupancy across the NCR hotels grew from 70% to 79%. In FY 2007-08, the occupancy rate was approximately 77%, which is expected to further decline by the end of FY 2008-09. This marginal decline in occupancy levels can be attributed to the global economic slowdown, political unrest in Nepal & Tibet, the Gujjar movement in the NCR and bomb blasts in various parts of the country. ARR in the region has gradually increased from Rs.5,000 in FY 2004-05 to Rs.7,500 in FY 2006-07. As on the third quarter of 2008, the ARR was is approximately Rs.10,500. Room revenue contributes almost 60% of the total revenue generated in the hotels while the Meetings, Incentives, Exhibitions and Conferences (MICE) segment accounts for approximately 15% of total revenue.

The revenue share of the Food & Beverage (F&B) sector is limited due to competition from local restaurants and food chains. Remunerations and salaries represent the major operational cost for NCR hotels.

expected to witness an additional supply of close to 3,500 rooms in the 5-star Deluxe and 5-star category. Brands like The Crowne Plaza, Radisson, Indus Group and the Taj Group will all contribute towards the total supply. It remains to be seen whether this surge in supply is sustainable once the Commonwealth Games are over.

5-star Deluxe and 5-star Hotels
With an inventory of close to 7,000 rooms as of FY 2007-08, 5-star Deluxe and 5-star hotels comprise the largest share of total room inventory in the NCR. The amalgamation of high class luxury rooms and business conferencing facilities and services enables this segment to cater to a mix of leisure and high-end business travellers to the region. The niche clientele of this segment has helped it achieve a steady ARR growth rate of approximately 15-20% since FY 2005-06. The ARR value in FY 2007-08 for the segment was approximately Rs.10,000. In the next few months, the growth in ARR values are expected to witness a slowdown, primarily owing to the security threat in the country and the global recession, which has forced several domestic and international companies to scale down travel and outstation stay of employees. The occupancy across the segment for the year FY 2007-08 was around 75%. In 2010, the NCR will host the Commonwealth Games, which will attract a lot of sports tourism from across the globe. Foreseeing increased demand for room nights, a number of hoteliers are initiating new projects in the region. By the end of 2010, the NCR is

With an inventory of close to 7,000 rooms, 5-star Deluxe & 5-star hotels comprise the largest share of total room inventory.
4-star Hotels
The NCR being the centre for a lot of commercial business activities, political meets and healthcare development, the number of business travellers to the region is high. With about 65-70% of corporate clientele, the 4-star segment witnessed an average occupancy of 85% in FY 2007-08. The IT/ITES sector and the automobile and pharmaceutical industries have been the major demand drivers in this segment. The ARR during the FY 2007-08 was Rs. 7,600. The current room inventory for 4-star hotels in the NCR is 1,623 rooms. By the end of 2010, the segment is expected to see an additional room supply of 1,800 rooms. Micro-markets in NCR like Gurgaon, Noida and Greater Noida will contribute towards a major share of this

Radisson, Gurgaon

additional supply.

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Budget Hotels
Corporate travellers seeking accommodation for longer durations prefer budget accommodation as compared to high-end 5 and 4-star properties. With basic accommodation services like air-conditioned rooms, in-house restaurants, laundry facilities and gymnasiums, budget hotels in the NCR market have achieved a high average occupancy of 82% during the year FY 2007-08, while the ARR for budget hotels was Rs.3,000. However, the global economic slowdown is having an impact on the business of these budget hotels as well. With corporate houses cutting costs and reducing business travel and travel durations, occupancy during the year FY 2008-09 is expected to dip marginally.
Figure 4

is forecasted to continue for about another month, especially as foreign government agencies have declared India to be unsafe for travel. The revival of the industry post the Mumbai attacks is expected to take up at the beginning of 2009. Hotel authorities in the NCR have taken up various measures to maintain high occupancy levels during this time of distress. Hotel security is being beefed up across the board, and certain hotels are tying up with travel authorities to maintain continuity of business. Rooms are available at a discounted price, which is expected to lower the ARR for the month of December 2008 by about 20%. In the long run, adequate infrastructure development will be in place to ensure a healthy hospitality industry within the NCR. Encouraging government policies such as the entitlement to duty-free imports of hospitality products and services have facilitated considerable capital inflow from the global market. Recent transactions of hotel plots at prices which are thrice the reserved level show the growing interest of investors in the region. As part of the 2008 Union Budget, the The entry of international players is expected to strengthen the NCR market. In order to promote tourism and hospitality infrastructure development in India, a number of PPP initiatives are being undertaken as joint venture projects with leading developers like Unitech, DLF and Parsvnath. Developments like high-speed express highways, information technology platforms and energy and power projects are a few areas where PPP ties are being explored. Such initiatives are expected to boost economic growth, and more specifically hospitality sector growth, in the NCR over the coming years. Finance Minister announced the extension of the five-year tax holiday for 2-star, 3-star and 4-star hotels and convention centres specifically catering to the Commonwealth
Budget Jaypee Vasant Continental, Delhi

into joint ventures with international brands to set up hotels in the region. The Hilton Garden Inn in Rohini and Saket is a DLF and Hilton joint venture and “The Regent Hotel” in Greater Noida is an upcoming joint venture between Unitech and Carlson Group.

Category-wise ARR
14,000 12,000 10,000 8,000

Rs.
6,000 4,000 2,000 0 5-star Deluxe 4-star 5-star

Games in Delhi, Gurgaon, Ghaziabad and Faridabad. Due to this, the local and international developers have initiated more hotel projects in the region. To benefit from this tax holiday, projects are required to be constructed and operational anytime between 1st April, 2008 to 31st March, 2013. Due to high land cost and with a view to mitigate risk, the concept of hotels in malls is also flourishing. Budget hotels in malls which offer shopping experience with entertainment facilities under one roof are eliciting attention from various hospitality players. 'The Leela' Hotel in the Ambi Mall and 'Clarks Inn' in the Pacific Mall are examples of such projects. Developers like Unitech and DLF are entering

Minimum Source: Knight Frank Research

Maximum

Outlook
The hospitality industry in the NCR has been dented by the global economic recession and security threat, highlighted by a number of terrorist attacks across the country this year. This has led to a dip in the occupancy rates in the NCR hotels in the third quarter of the current year. Hotels across the NCR have witnessed cancellations of about 15-20% from the foreign international travellers after the Mumbai blasts. The decline in occupancy

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Q4 2008

INDIA HOTEL
Review

Jaipur
Figure 5

Meetings, Incentives, Conventions and Incentives (M.I.C.E) rates, coupled with the historic ambience of the city are now making Jaipur a favoured destination for IT/ITES, pharmaceutical and Banking & Insurance companies to organise their seminars and meets. The city, which was previously recognised more as a key tourist destination, is now being explored as an operational base for a number of IT/ITES and pharmaceutical companies.

generated by the business segment vis-à-vis the leisure segment. Increasing corporate presence in Jaipur is changing the profile of the hospitality industry in Jaipur. Services like conference rooms, board room layouts and executive lounge services are extremely sought-after in the city. September to March is considered to be the 'Season' period for the leisure segment, whereas for the business segments there is no such demarcation.

Movement in ARR (5D,5,4-star Hotels)
7,000 6,000 5,000 4,000 Rs. 3,000

Factors like low operational cost, availability
2,000 1,000 0 2006 Q3 2008 2004 2005 2007

of cheap and abundant labour, favourable economies of scale and low attrition rates have been responsible for lending the city a new outlook. As a result, the real estate scenario in Jaipur has witnessed substantial growth in the past 3-4 years. This has been amply supported by the presence of big projects by Emaar MGF, Ansals, Mahindra, OMAXE, Unique Builders and other leading developers.

Source: Knight Frank Research Figure 6

Occupancy Rate (5D,5,4-star Hotels)
80 70 60 50 Percent(%) 40 30 20 10 0 2006 Q3 2008 2004 2005 2007

Current Scenario
The past trends reveal that heritage and culture tourism were the major demand drivers for hospitality in Jaipur. However, of late, a reasonable amount of hospitality demand is emanating from the corporate sector as well. Important pharmaceutical residential conferences, IT and banking meets, etc. are changing the hospitality outlook of the city. Currently, around 40% of the total hospitality demand in Jaipur is

Services like conference rooms, board room layouts and executive lounge services are extremely sought-after in the city.
In recent times, the total inventory of hotel rooms across all segments has seen an upward trend.

Source: Knight Frank Research

Overview
Jaipur, the capital of the state of Rajasthan, has emerged as a fast growing business centre in North India. Established in the year 1772 by Maharaja Sawai Jai Singh II, the city has great historic significance attached to it. Being the first planned city of India, the state government has not just taken ample care to preserve its historical sites, but has also made concerted efforts to ensure widespread infrastructure developments. Affordable
Sawai Man Singh, Jaipur

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The total room supply has gone up to 2,923 rooms from 2,655 rooms since FY 2006-07. A large share of the additional supply comes from two hotels, viz. The Ramada, which became operational in early 2008 with an inventory of 160 rooms, and The Golden Tulip, which became operational towards the end of 2007 with an inventory of 108 rooms. Category wise, there are a total of about 367 rooms in the heritage category, around 1,144 rooms in the 5-star category and about 657 rooms in the 4-star category. Notably, the 4-star category has witnessed the maximum growth in inventory since 2004. This gives a clear picture of the growing demand for business class hotels in Jaipur. Jaipur's hospitality industry witnessed an average annual occupancy level of about 65% in FY 2007-08. Remarkably, in FY 2007-08, while the off-season occupancy in Jaipur was around 50%, the seasonal occupancy was as high as 80-85%.
Figure 7

Heritage Hotels
Heritage Hotels have been the legacy of Jaipur's hospitality industry. The provision of royal services like solar heated swimming pools, in-house beauty parlors, shopping arcades, sports complexs, horse rides and golf courses makes these hotels the epitome of royal luxury. However, the global economic slowdown, security threats across the nation and increasing corporate travellers to the city vis-a-vis leisure travel are leading to a decline in the business for heritage hotels in Jaipur. The occupancy level for heritage hotels in Jaipur was around 50% in FY 2007-08. The ARR for the heritage segment has been Rs.17,000 for the FY 2007-08.
Trident, Jaipur

5-star Hotels
The 5-star hotels in Jaipur have been catering to a mix of luxury and a high-end corporate clientele. With several corporate meets happening in the city throughout the year the segment has seen a stable increase in their occupancy and ARR levels since FY 2003-04. The occupancy levels have grown from being 62% in FY 2006-07 to 67% in FY 2007-08. The ARR for 5-star hotels during FY 2007-08 was Rs.4,500, which has almost doubled since FY 2003-04. Although the leisure travel in the city is declining, the corporate clientele generates enough business for the 5-star segment to sustain its growth in the following year.

contributing the remaining 40%. The growth in the F&B business is primarily due to the growth of corporate conferences and exhibitions in Jaipur. An increase in the number of business travellers in Jaipur has prompted foreign players like Radisson, The Grand, Ten Hotels, Dusit International and Lemon Tree to set up new hotel projects in the city. Existing players like The Royal Orchid Group, Jaipur Golden, The Fortune Group and The Marriot Hotels are also setting up new hotels in the 4-star and 5-star categories. Around 1,450 new rooms are expected to be added to the existing inventory of 4-star and 5-star hotels in Jaipur by the end of 2010. The Radisson Group's hotel, with an expected inventory of 250 rooms, is the biggest upcoming project. A lot of new projects have been undertaken with the idea of mixed (retail cum hospitality) space in Jaipur. The MGF Metropolitan Mall, by the Emaar-MGF Group will host a 5-star Fortune Group hotel with an inventory of 90 rooms.

Category-wise ARR
25,000

20,000

15,000

Rs.
10,000 5,000

4-star Hotels
0 Heritage 5-star 4-star

In Jaipur, growing corporate activities like business conferences & conventions, trades and exhibitions, etc. in Jaipur, have led to
Minimum Maximum

considerable demand for 4-star business hotels in Jaipur. With a corporate clientele base of 85-90% throughout the year, the segment witnessed an occupancy level of

Source: Knight Frank Research

The occupancy levels for Jaipur have witnessed a 16% aggregate growth since FY 2004-05. Besides, the ARR values in Jaipur have almost doubled from Rs. 2,680 in FY 2004-05 to Rs.5,400 in FY 2007-08.

67% in FY 2007-08. The ARR value for FY 2007-08 was Rs.3,500. According to Knight Frank research, approximately 60% of total hotel revenue is generated by room rents, with F&B

Outlook
Security threats in India are having a considerable impact on the hospitality business across the nation. The negative impact of these events is downsizing the growth potential of India's hotel industry.

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Q4 2008

INDIA HOTEL
Review

This is also adversely affecting the revenue generating potential of important hospitality pockets across India. Moreover travellers are now finding alternative leisure destinations. The recent terror attacks in Mumbai have had a negative impact on Jaipur's hotels business as well. In the week post the Mumbai blasts, the hotels in Jaipur have seen an average cancellation of reservations of about 20-25%. Although the months of Nov-Dec are considered to be the peak hospitality seasons in Jaipur, a number of foreign leisure travellers are either delaying or cancelling their trips to the city. Major pharmaceutical, IT and banking companies, which generally schedule their residential conferences in January in Jaipur, have either deferred or rescheduled these events to late February. The impact of the attacks on Mumbai cannot be assessed as of now entirely as it completely depends on how the international authorities comment on the security situation in India.

Despite the temporary slowdown caused by the recent terror attacks, all infrastructure initiatives that were proactively planned by the central and state authorities to further strengthen the position of Jaipur as one of the preferred leisure destinations in India are still potential deliverables. With Rs.200 billion worth of infrastructure investment proposed in Rajasthan, Jaipur is expected to see better infrastructure support and provisioning of amenities within the city limits. Better connectivity to the city on account of low-cost airlines has led to increased consideration of the city as a venue for conventions and highprofile marriages. High-end conferencing facilities with state-ofthe-art business infrastructure support have boosted the hospitality demand from the corporate segment. This will further augment the share of room revenue in the total revenue generation pie and also create new demand for rooms. The Hotel Policy 2006 provides special Emerging destinations for new hotel projects include Delhi Road due to the development of industrial parks, Ajmer Road on account of development of integrated townships and SEZs and Tonk Road owing to new commercial developments. Jaipur, with its historical charm, will continue to attract international tourists. Growing corporate business will further boost the hospitality business. With the city emerging as a major centre for gems and jewellery and textiles exports, a further boost to the hotel sector is expected. Seasonal occupancy levels of around 80-85% clearly suggest that there is an ample demand for hotel rooms in Jaipur. With high seasonal demand, the expected supply of 1,450 new rooms by 2010 will bring equilibrium in the market, stabilising the volatility in ARR movements.

With high seasonal demand, the expected supply of 1,450 new rooms by 2010 will bring equilibrium in the market.

The revival of the industry depends on how the national and international media portray the entire situation. Concrete security measures are being incorporated by the hotel administrations in Jaipur. These measures include training of housekeeping staff on security standards and rigorously conducting identification checks for all walk-in travellers. In light of declining demand for room nights, hotels across Jaipur have reduces tariffs by 30-35%.

provisions for development of hotels in Jaipur. The policy includes reservation of land parcels within the city for hotel projects, availability of hotels plots at a reduced reserved price (almost 50% of commercial reserved price), 100% exemption on entertainment tax and 100% exemption from land conversion charges. All these provisions are expected to increase the supply of hotel rooms in the city.

Country Suits Inn, Jaipur

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KOLKATA
Figure 8

real estate opportunities have led prominent real estate developers to take up significant land holdings in the suburban locations. The Eastern Metropolitan Bypass is being increasingly viewed as the Central Avenue of modern Kolkata while Rajarhat is being promoted as an IT hub in the east of Kolkata. The city has also been attracting a number of real estate investors and developers with financial muscle. These investors, both foreign and Indian, have identified prime areas for investment while developers such as DLF and Unitech already have projects operational in the city. In recent times, Kolkata has witnessed significant demand for hotel rooms, leading

all segments, including the budget hotels. A majority of the proposed supply is concentrated towards north-eastern Kolkata with 69% of the hotels coming up in this part of the city. Out of this, the maximum supply is expected to be contributed by the EM Bypass micro-market, while approximately 1,012 rooms are expected to be added to the premium segment in the Rajarhat micromarket by 2013. These rooms are expected to cater to the demand emanating from the commercial developments in Rajarhat as well as the IT hub at Salt Lake Sector V. The EM Bypass stretch has only one operational 5-star Deluxe hotel (ITC Sonar Bangla) while four additional premium hotels are expected to be operational by 2013.

Movement in ARR (5D,5,4-star Hotels)
8,000 7,000 6,000 5,000 Rs. 4,000 3,000 2,000 1,000 0 2006 Q3 2008 2004 2003 2005 2007

the hospitality sector to thrive after a lull of almost two decades. This could be primarily attributed to the strong growth of the IT/ITES sector in the city. There has been a substantial increase in the demand for good quality short-stay accommodation from Indian as well as foreign executives. This essentially implies that increased commercial activity in the city has been instrumental in creating higher demand for hotel room nights. Also, with Kolkata being the only metropolitan city for the entire eastern belt of the country, most of the hotels have high occupancies arising out of increased tourist inflows. The period between 2002-07 was stagnant with no supply in the 5-star and 5-star Deluxe segment. The city witnessed considerable increase in the room supply with the entry of ITC Sonar Bangla and the Hyatt Regency in 2002, which accounted for an addition of around 450 rooms to the city's hotel inventory. At present, approximately 85% of the existing room stock in Kolkata falls under the 5-star and 5-star Deluxe category. The rack rates for these up-market hotels are relatively higher and occupancies have been consistently increasing since the last four years. The gap between the demand and supply of hotel room has also widened, with no room addition since 2002. All these factors have together led to a healthy increase in ARR values across segments. However, the ARRs are expected to dip marginally in the next three years, post 2009. This can be attributed to the quantum of supply expected to be operational in the forthcoming 2-3 years. About 800 rooms are expected to be added in the 5-star and 5-star Deluxe segment by 2012, out of which around 225 keys will be ready in 2010.

Source: Knight Frank Research Figure 9

5-star Deluxe and 5-star Hotels

Occupancy Rate (5D,5,4-star Hotels)
100

80

Percent(%)

60

40

20

0 2006 Q3 2008 2004 2003 2005 2007

Current Scenario
Most of the existing hotels in the city are located closer to the CBD, as the commercial developments in the peripheral micromarkets came up only recently in the last 4-5 years. While the city currently has a dearth of hotel operators in the city, in the next 34 years, Kolkata is set to witness an influx of international brands operating in Rajarhat, Salt Lake and EM Bypass. Over the period 2000-07, hotel room supply witnessed a sluggish average annual growth rate of 6%. Significantly, a total of 3,831 additional room keys are expected to be added to the market by the year 2012 across

Source: Knight Frank Research

Overview
Kolkata, the capital of West Bengal, is the main commercial and financial hub of eastern India. Formerly the capital of India during the British rule, the city is famed for its rich cultural heritage and distinct socio-political set up. Kolkata, of late, has been actively competing against other Indian cities as a preferred corporate destination. The emerging IT profile of the city and the consequent generation of

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INDIA HOTEL
Review

Some of the major brands expected to be operational in the coming years include joint venture projects by DLF and Hilton (239 rooms, EM Bypass); Unitech and Ritz (200 rooms, Tollygunge); DS Group and Carlson (320 rooms, near the airport) and Berggruen Group (Rajarhat). The Apeejay Surrendra a 5-star hotel on the EM Bypass. However, a few of the hotel projects announced have been stalled owing to the current economic slowdown. The ARR value for the 5-star and 5-star Deluxe segment was around Rs.6,310 in 2007, which came down to an average value of Rs.6,080 during the third quarter of this year. The average occupancy rate in the city recorded 74% during the same period this year, which reflects a decline of about 7% over the past year's level. This decline in ARRs and occupancy rates reflects the low market sentiments as well as the slackening rate of growth in the IT/ITES sector, which was primarily responsible for driving the demand for hotel rooms in the city.

Figure 10

premium hotels and the 4-star hotels to some extent, the budget hotels have not been affected perceptibly. This can be attributed to the cost cutting strategies applied by many firms who are increasingly shifting their executives to budget hotels from 5-star and 4star hotels. Also, the lack of new supply in this category of hotels has been responsible for the high occupancy levels. Going forward,

Category-wise ARR
10,000

8,000

6,000

Rs.
4,000

Group Park Hotels Ltd. is also coming up with

around 400 rooms are expected to come up in the budget segment by the end of 2012.

2,000

Outlook
0 Budget 5-star Deluxe 5-star 4-star

The period between the years 2002 to 2007 did not see any significant addition to the room stock in the city of Kolkata. Besides, no supply addition is expected for the next year as well. This has led to an increase in the demand-supply gap, allowing most of the hotels in Kolkata to run at higher occupancy levels. However, with majority of supply being added in 2010 and 2012, the occupancies are expected to come under pressure. Further, the ARRs are also estimated to stabilise due to competitive supply in the market. Besides the supply in the pipeline, a number of factors are responsible for the projected low occupancy rates and ARRs. The global economic slowdown has led the hotel industry to a slump. Meanwhile, the controversy over the Tata Nano plant at Singur, which ultimately saw the Tatas pulling out of the state, has created downbeat sentiments towards Kolkata as an investor-friendly region. Another factor dampening the Kolkata hotel market has been the terror attacks on Mumbai, which have reduced the projected number of foreign tourists arriving in the country. All these factors notwithstanding, the hotel industry in Kolkata can still look forward to a positive market scenario with majority of the developers going ahead with their hotel projects. By the end of 2012, the Kolkata hotel market shall boast of a number of international hotel brands in the city.

Minimum Source: Knight Frank Research

Maximum

Budget Hotels
In Kolkata, most of the budget hotels generate a major proportion of revenue through corporate travellers visiting the city. Generally, these hotels have a clientele base of executives from the pharmaceutical sector, manufacturing, telecom industry as well as the IT/ITES sector. Many of these hotels also have tie-ups with travel portals for getting customers. Besides, as the city boasts of the only international airport in the region, there are a large number of tourists who visit the city for transit purpose. In the past, these hotels played host to a large number of Bangaldeshi tourists, who would visit the city to avail of medical services or to attend weddings of relations in the city. However, of late, due to security threats, this trend has reduced to some extent. Besides, the percentage contribution from the leisure segment has been declining over the years, from around 15% in 2005 to an average of 8% in 2007. At present, the budget hotels have ARR values in the range of Rs.2,860-3,200 and enjoys an occupancy rate of around 77% during the off-peak season and around 83% during the peak season of Oct-Feb. While the economic recession has impacted the

4-star Hotels
The occupancy rates of the hotels in the 4star category have been higher as compared to those of the 5-star and 5-star Deluxe hotels in Kolkata due to the lesser number of room keys available. Around 437 rooms are expected to be added to the 4-star category by 2012. The ARR figures stood at an average value of Rs.5,025 during May-Sept 2008. Amongst the new 4-star projects underway, note can be made of the 150 room hotel by Bengal Ambuja and a 242 room project by the hospitality group Marriott to be developed by the Unitech Group. Both these projects are located in Rajarhat and are scheduled to be operational by 2011-12. Meanwhile, Peerless Inn, an existing 4-star hotel, has plans for expansion in terms of addition of rooms and is expected to be converted into a 5-star Deluxe hotel by 2010.

10

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Mumbai
Figure 11

Besides financial and port related activities, it is also the primary centre for the art and entertainment industries. Over the last few years, developments like the widening of the Mumbai-Pune highway and expansion of the IT/ITES sector in the city has infused optimism to the Mumbai real estate market. This, in turn, triggered widespread developmental activities in this sector. Although the city comprises the Island City, Western Suburbs, Central Suburbs, Navi Mumbai and Thane, the hotel industry can be distinctly divided into two districts, viz., North Mumbai and South Mumbai, based on the business mix. While the hotels in North Mumbai, especially those in proximity to the

ARRs have declined on an average by 5-10% in South Mumbai and 10-15% in North Mumbai during the period May-Sept 2008. The reason for the difference between the two regions is that South Mumbai, due to its relatively more saturated demand, is expected to exhibit greater resistance to declining rates. Due to a sharp increase in operating costs, the 5-star Deluxe and 5-star hotels, with more voluminous operations, are under severe pressure to lower rates in order to support occupancy in the face of reduced demand. 4-star and budget hotels are better placed to wait and see how the market shapes up in the coming months before being forced to adjust their rates.

Movement in ARR (5D,5,4-star Hotels)
10,000

8,000

6,000 Rs. 4,000 2,000

0 2006 Q3 2008 2004 2003 2005 2007

airport, mainly cater to the corporate travellers (88-90%) and airline crew (8-10%), hotels in South Mumbai have a mix of leisure (20%) and business (80%) travellers.

5-star Deluxe and 5-star Hotels
North Mumbai has a larger concentration of hotels in the 5-star Deluxe and 5-star categories with a total of 16 hotels and an inventory of around 4,321 rooms. The region comprises the majority of the hotel room stock, to the tune of around 68%, with the rest located in South Mumbai. These hotels witnessed an average occupancy of 75% in FY 2006-07 and this rose to around 78% in FY 2007-08. However, occupancy levels across these hotels have seen a drop of around 13% during May-Sept 2008. This can be largely attributed to the slowdown in the global markets given the fact that business travellers contribute the largest percentage share of clientele across these categories of hotels in Mumbai.

Source: Knight Frank Research Figure 12

Occupancy Rate (5D,5,4-star Hotels)
78 76 74 72 Percent(%) 70 68 66 64 62 60 2006 Q3 2008 2004 2003 2005 2007

Current Scenario
Currently, Mumbai houses 74 government approved hotels across all categories with a total count of 9,503 rooms. In terms of the boom experienced by the hospitality industry, particularly during the last year, this might have been viewed as a supply shortage. However, due to the current global economic crisis, the sector across the board is facing a turbulent phase. Leisure and business travel, particularly that emanating from the financial sector, has reduced on account of a general liquidity crunch and exorbitant airline fares resulting from a hike in fuel surcharges.

Source: Knight Frank Research

Overview
Mumbai, the financial capital of India and the state capital of Maharashtra is one of the fastest growing metros in the country. The Reserve Bank of India, the two most active stock exchanges in the country viz. National Stock Exchange and Bombay Stock Exchange, the Securities and Exchange Board of India (SEBI) and numerous national and international financial service providers have their headquarters in Mumbai.
Taj Mahal, Mumbai

11

Q4 2008

INDIA HOTEL
Review

While the ARR in North Mumbai hotels was Rs.7,416 in FY 2006-07, these hotels witnessed ARR in the range of Rs.8,00013,000 in FY 2007-08. With ARR figures dropping by around 5% till September 2008, the Revpar has also been reducing substantially in the past 5 months. There are total 6 hotels in South Mumbai in the 5-star Deluxe and 5-star category with an inventory of approximately 2,015 rooms. These hotels have also been impacted by the economic slowdown and have recorded average occupancy level of 60% during the period of May-Sept indicating a drop of around 10% as compared to an occupancy level of 70% witnessed in FY 2007-08. The South Mumbai hotels achieved an annual ARR in the range of Rs.9,600-14,700 in FY 2007-08. This signifies an increase of around 20% in comparison to FY 2006-07 when the reported ARRs ranged between Rs.7,339-10,652. These hotels have witnessed a drop in ARR of around 6% till September 2008. Two notable hotel projects in 2008 include the Four Seasons at Worli, which became operational early this year and Trident at BKC, which is expected to be completed by the end of the year.
Figure 13

These projects will comprise adding 202 and 436 rooms respectively. In all, approximately 5,078 rooms are estimated to come up in the 5-star Deluxe and 5-star categories by end-2012. Most hoteliers were sceptical about reaching the budget targets that were set in 2007 as it did not predict the global downturn and hence were largely overestimated based on the previous year's performance. While hotels were awaiting occupancy level results over the next two months which would be the typical peak season in the industry in order to estimate whether they would be able to meet their targets or resort to decrease room rates, the recent attacks on the city have forced hoteliers to reduce their tariffs by 15-20%. Many of the hotels are now looking for various cost cutting strategies and ARRs are expected to reduce further by around 10-15% over the next few months.
Trident and Oberoi Mumbai

the level of corporate demand catered to. The level of discounts in general could witness a rise as hotels look to buffer demand without having to slash rates. Hotels in this category cater more to domestic

4-star Hotels
Of the 14 operational 4-star hotels in Mumbai, 13 are distributed between South Mumbai and Juhu/Vile Parle in North Mumbai. The existing inventory of 4-star hotels in Mumbai is 1,191 rooms, which accounts for 15.4% of total room inventory across the 5-star deluxe, 5-star and 4-star categories. Approximately 692 new rooms will be added to the total supply of 4-star rooms in Mumbai by the end of 2012. The ARR in this category, which during the

demand with 59.5% of total demand accounted for by domestic travellers and 40.5% by foreign travellers. Within the aforementioned mix, leisure travel owes more to foreign travellers who on average account for 55% of total leisure demand in the 4-star category, whereas 75% of total business travel is accounted for by domestic business travellers as the foreign business travellers prefer the higher-end 5-star and 5-star Deluxe hotels.

Category-wise ARR
20,000

15,000

FY 2006-07 hotel industry boom rose to Rs.5,870 from Rs.5,036 in FY 2005-06, has risen further during FY 2007-08 to Rs.6,274.

Rs.

10,000

This reflects the fact that 4-star hotels are facing relatively less pressure to ease their rates when compared to the 5-star category.

5,000

In fact, most have pressed ahead with their scheduled rate increase this October. However, occupancy rate, which averaged
Budget 5-star Deluxe 5-star 4-star

0

86.6% in FY 2006-07 from 82% in 2005-06, has declined during FY 2007-08 to 77.2%. Corporate discounts are prevalent at these hotels and range from 10-50% depending on

Minimum Source: Knight Frank Research

Maximum

Approximately 692 new rooms will be added to the total supply of 4star rooms in Mumbai by the end of 2012.

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The total revenue in these hotels is primarily accounted for by Room and F&B, with the former constituting around 70% and the latter 30% of total revenue. Those hotels that are providing facilities such as nightclubs (examples being The Gordon House Hotel in Colaba and Ramee Guestline Juhu) and health clubs also snare a share of total revenue through the same.

The budget hotels cater primarily to domestic demand. Approximately 67.6% of the total demand across all these hotels is accounted for by domestic travellers and 32.3% by foreign travellers. The difference in demand can be attributed to the fact that these hotels predominantly represent domestic brands.

Outlook
The recent terrorist attacks in Mumbai city coupled with the ripple effects of the slowdown in the global economy will severely impact hotels across all categories with the premium segment taking the maximum hit over the next year. Most hotels are canceling or down-scaling their New Year's parties which further decreases revenue generation. While in September 2008, occupancy levels in South Mumbai were already considerably low, the recent developments have amplified the pressure on these hotels. The North Mumbai hotels, however, will be less affected due to their proximity to the airport. While many Mumbai hotels have reduced tariffs by 15-20% to sustain demand, a further decrease of 10-15% is expected over the next 3-4 months. On a positive note, various infrastructure projects like the Bandra-Worli sea link, Metro Rail and Nhava-Seva sea link are expected to enhance connectivity, thereby supplementing hospitality growth along these corridors in the long run. Also, the development of the new airport at Navi Mumbai is expected to increase hotel demand in the contiguous micro-markets. A total supply of 5,989 hotel rooms is expected to be added across the 5-star Deluxe, 5-star, 4-star and budget categories in Mumbai by the end of 2012, although what materialises will depend largely on the duration of the lean patch the industry is currently going through. At this juncture, certain Mumbai hoteliers are contemplating changing the use of land purchased for hospitality expansion to commercial use.

Budget Hotels
Budget hotels in Mumbai are more evenly distributed around the city. Besides the South Mumbai locations, a good number of hotels in this category are located in areas such as Juhu, Andheri, Bandra, Khar, Navi Mumbai and Powai. The ARR in this category, which during the FY 2006-07 hotel industry boom rose to Rs.4,360 from Rs.4,100 in FY 2005-06, has dropped during FY 2007-08 to Rs.4,260. Occupancy, which during FY 2006-07 averaged 85.98%, up from 82.30% in FY 2005-06, has declined during FY 2007-08 to 76.10%. The significant difference here when compared to the 4-star scenario is that in the face of declining occupancies, 4-star hotels have the financial cushion to support their rates, whereas most budget hotels do not, and hence have slightly reduced their rates. Corporate discounts offered in this category range from 10-30%, which reflect the fact that corporate demand at budget hotels is more sporadic than voluminous.

Around 67.6% of the total demand in budget hotels is accounted for by domestic travellers and 32.3% by foreign travellers.
On an average, 78.3% of revenue for hotels in the budget category is accounted for by the room rents and 21.7% is generated from F&B activities. Approximately 322 new rooms will be added to the total supply of budget hotels in Mumbai by the end of 2012.

JW Marriott, Mumbai

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INDIA HOTEL
Review

PUNE
Figure 14

destination, a factor which has had a direct positive bearing on the city's hotel industry.

Another notable project in this category is Gordon House located on Ganeshkind Road and which is the only Boutique hotel in the city. Though these two categories account for 40% of the existing stock across the 5-star Deluxe, 5-star and 4-star hotels, they cater to nearly 85% of business travellers and foreign tourists. The average occupancy in FY 2006-07 was around 88%, hotels recorded occupancy of 92% in FY 2007-08. While the occupancy levels of these hotels witnessed a marginal increase in 2007, during the first and second quarter of 2008, there was a dip of around 9%. This can be largely attributed to the slowdown in the IT/ITES sector, which is one of the primary drivers of demand among the business segment. While the ARR across all categories in the city has increased significantly over the past few years, the premium hotels witnessed a marginal increase of 4.12% from FY 2006-07 to FY 2007-08 with ARR in the range of Rs.6,800-9,300. Due to the decrease in occupancy levels, ARRs are expected to remain stable, if not reduce over the next year. Many hotel brands like Leela, JW Marriot, Radissons, Sheraton, etc. are expected to enter the Pune market over the forthcoming 3-4 years. Approximately 4,275 rooms are estimated to become operational by end2012, accounting for almost 67% of the new supply in the premium category.

Movement in ARR (5D,5,4-star Hotels)
9,000 8,000 7,000 6,000 5,000 Rs. 4,000 3,000 2,000 1,000 0 2006 Q3 2008 2004 2003 2005 2007

Current Scenario
The potential of this fast developing city and its hotel market has attracted a number of major chains. International players like JW Marriott, Hyatt and Starwood are coming up with premium hotel properties in the city in the next two to three years. During the current financial year, the IT operations in India have faced a major setback due to the global economic crisis. Most of the IT firms, as a cost cutting strategy, have slimmed down their travel plans and training activities, and this has reduced the occupancy levels of the hotels in Pune relative to last year.

Source: Knight Frank Research

Figure 15

5-star Deluxe and 5-star Hotels
There are only two 5-star Deluxe and four 5-star hotels in the city of Pune. Since Pune exhibits a radial development, most of these hotels are located in the Central and North East Zones of the city where development was initially concentrated. The two 5-star Deluxe properties viz. Le Meridian, located at Raja Bahadur Mill Road, and Sun n Sands

Occupancy Rate (5D,5,4-star Hotels)
100

80

Percent(%)

60

40

located in Bund Garden, contribute an inventory of around 314 rooms. At present, there are a total of 353 rooms in the 5-star category. Noteworthy amongst them is the O Hotel located in Koregaon Park by
2006 Q3 2008 2004 2003 2005 2007

20

0

Starwood that became operational in mid-2008.

Source: Knight Frank Research

Overview
The emergence of IT/ITES sector in the city of Pune and its consequent boom has contributed extensively to the growth of the city's hospitality sector. With the entry of many reputed Indian and global software players since 2000, the city has experienced an annual increase in foreign and domestic corporate/business travellers in the range of 12-15%. As a result, Pune has recently gained immense importance as a business tourist
Le Meridien, Pune

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Of the total new supply, the North Eastern and the Central Zones will infuse the maximum quantum in the 5-star Deluxe and 5-star categories. The heritage hotel at Saswad built by Orchid group also became operational in 2008. Two notable upcoming projects include 'Marriott Courtyard' and

Figure 16

Category-wise ARR
10,000

8,000

6,000

Rs.
4,000 2,000

'Gateway Taj' at Hinjewadi.

4-star Hotels
Pune has 16 hotels in the 4-star category with a total inventory contribution of about 987 rooms. The Central Zone accounts for around the city. The clientele base in these hotels constitutes both domestic and foreign business travellers as well as foreign leisure travellers. However, the number of business travellers and foreign leisure travellers has reduced in 2008 owing to the global economic slowdown. The reduction in the occupancy rates could also be attributed to the fact that many of the budget hotels have started upgrading their services to compete with the higher category hotels. ARRs across the 4-star hotels have remained relatively stable over the past year recording an ARR in the range of Rs.4,000-7,700 in FY 2007-08. However, while occupancy levels increased on an average from around 85% in FY 2006-07 to 91% in FY 2007-08, the year 2008 has witnessed a decline in occupancies over the past two quarters. In total, around 2,113 rooms are expected to be infused into the Pune hotel market over the next 3-4 years. While the North Eastern Zone will contribute 46% of the new supply, the Central and North Western Zones will account for 35% and 19% of the supply respectively. The significant developments in this category of hotels include Dawnay Day Hotels India at Nagar Road and St.Lauren at Mundhwa. 51% of the total stock in this category across

0 Budget 5-star Deluxe 5-star 4-star

Minimum Source: Knight Frank Research

Maximum

St. Lauren, Pune

Outlook
engineering and ancillary services aside from the IT/ITES sector which is the predominant sector of Pune. Of the total number of budget hotels in the city, 66% of the current stock is located in the Central Zone. With improvements in the city's economic scale, this category of hotels has observed a steady growth over the past two years. The average occupancy rate across this section was around 70% in FY 2007-08, with ARR in the range of Rs.2,500-3,500. While the premium segment of hotels witnessed a marginal increase in ARRs, the budget hotels witnessed a significant increase where the maximum ARR was recorded in the first quarter. Around 7 new hotel projects are expected to be operational by end-2012, adding approximately 869 rooms to the current stock. This supply will be evenly distributed in the three main zones, with the North Eastern, Central and North Western Zones contributing 33%, 42% and 25% respectively. The two notable projects in this category include those by IBIS in Viman Nagar and Hotel Surya Pvt. Ltd. in Baner. At present, there are around 35 hotels and 8 serviced apartment projects operating in Pune across all categories. For close to around a decade, no new hotel brands entered Pune. In a significant turn of events, since the last year, close to 25-30 new hotels and serviced apartments encompassing all categories have set up or announced plans of setting up in Pune. More than 50% of the upcoming properties in Pune are 5-star properties, the rest being 4-star, budget hotels and serviced apartments. The Eastern suburb of Pune is expected to see a number of major hotel groups setting up their projects. LAVASA, an upcoming mega township, has plans of setting up a 250 room 4-star Novotel spa resort by 2012. Pune, with its growing IT/ITES sector, biotechnology parks, automobile and manufacturing units, along with improved international air connectivity and readily available manpower is expected to have a positive effect on all the real estate sectors including the hospitality sector in the long run. Also, due to the increase in number of expatriate professionals as well as long-stay business travellers, the potential of the serviced apartments market has greatly increased over the years.

Budget Hotels
This category of hotel caters to most of the domestic business travellers from

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Q4 2008

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Review

GOA
Figure 17

Given its strategic linkages by rail and road to the rest of India, Goa occupies a prominent position as India's premier iron-ore exporting port as well. The state of Goa comprises of 11 talukas but for administrative purpose, it is divided into two districts, viz., North Goa and South Goa with its headquarters in Panjim and Margao respectively. According to the 2001 census, the population density in North Goa was 437 per sq. km. while that of the South Goa was 324 per sq. km. Enhanced infrastructure development and greater frequency of tourists led to early commercialisation of North Goa, while South Goa has experienced gradual and regulated developments.
2006 Q3 2008

has been steadily reducing in the past two years. While the number of chartered flights to Goa increased by 29% in FY 2004-05, the year FY 2005-06 witnessed an increase of just 4% in comparison to the previous year. This number reduced further and in FY 2007-08 only 710 flights came to Goa. Traditionally the city had two major seasons, Peak and off Peak which extended from Oct- April and May-Sept respectively. With the reduction in the number of chartered flights, the hotel sector in Goa focused more on the domestic traveller. This led to the emergence of three distinct seasons post 2006. Season 1 is the lean period from the end of May-Sept, where hotels focus on the domestic market and promote monsoon packages. Season 2 extends from Oct-Nov and Feb-May which caters to the charter segment as well as domestic tourists and is considered the peak season. The months of Dec-Jan are Season 3, which is now classified as peak-peak season where almost all hotels earn their maximum revenues especially from the 23rd Dec to 2nd Jan.

Movement in ARR (5D,5,4-star Hotels)
7,000 6,000 5,000 4,000 Rs. 3,000 2,000 1,000 0 2004 2003 2005 2007

The development control regulations encouraged the growth of the hospitality segment and restricted any other type of real estate development along the coastline. This has led to the entry of major hospitality brands like Taj, The Leela, The Marriot, Intercontinental etc. along prime stretches of Vainguinim, Miramar, Sinquerim, Candolim,

Source: Knight Frank Research Figure 18

Occupancy Rate (5D,5,4-star Hotels)
80

60

Calangute, Baga, etc. in the north and Arossim, Majorda, Varca, Raj Baga Beach, etc. in the south.

5-star Deluxe and 5-star Hotels
Five years back, North Goa was considered to be the prime location for most of the foreign and domestic tourists. However, with the development of a number of 5-star Deluxe hotels, South Goa with its virgin beaches has become a sought after destination for foreign tourists as well.

Percent(%)

40

Current Scenario
20

The hotel industry in Goa has grown extensively over the past three years. While charters comprised the majority of clientele
2006 Q3 2008 2004 2003 2005 2007

0

during the season of Oct- March, this trend

Source: Knight Frank Research

Overview
Goa has emerged as one of the leading tourist attractions in India because of its attractive beach destinations. With a 105 km coast line of scenic beaches of varying length, one of the main sources of revenue is tourism. Besides this, sectors like mining, shipping and fishing are also some of the key economic drivers of Goa.

Intercontinental The Grand, Goa

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Of the total twelve 5-star Deluxe properties in Goa, seven of them are located in the south and comprises an inventory of around 1,818 rooms. With a contribution of around 747 rooms in the 5-star category, the premium segment accounts for a total of approximately 2,565 rooms. Most of the hotels include various facilities like specialty restaurants, water sports, gymnasiums, casinos and a mini-golf course. While the foreign tourists market is still responsible for a large share of the revenue generated in the premium segment, hotels have now adapted their strategy and in the past year have been focusing on corporate and the HNIs of the Indian market. Promotion of corporate offsites, conferences and even beach side weddings contribute a significant amount to the revenue generated. The year FY 2007-08 witnessed an increase of around 10.25% in the ARR among the 5-star Deluxe and 5-star hotels in comparison to the previous year. The ARR during the various seasons ranged from around Rs.5,000-6,000 in the lean season to Rs.6,000-9,000 in the peak season and Rs.12,000-15,000 in the peak-peak season. However, the year 2008 is currently witnessing a slow down in the
Figure 19

market since June. ARR values till September across these segments were around Rs.4,000-5,000. Occupancy levels in these premium category hotels have dropped to around 45% in comparison to the year 2007 which recorded an average occupancy of 65-70% during the months of Aug-Nov. While the revenue contribution of F&B in the north is around 15-20%, most hotels in the south recorded an F&B contribution of around 25-35% and a cover capture ratio of around 75-80% among the charter segment during FY 2007-08. Approximately 2,490 rooms are expected to be infused into the Goa market by the end of 2012. A notable project includes that by the Taj group which will be coming up with a hotel in Panjim City.

only a 10-12% dip in occupancy, properties on the beach front saw a 15-20% decrease. The city hotels are still witnessing a demand from the corporate travellers and domestic tourists but the duration of their stay has reduced. The ARR in these hotels ranged between Rs.2,100-3,000 in FY 2007-08, with hotels in Panjim city recording the highest values. Currently the ARR has dropped by around 5.5% across the budget hotels. Around 450 rooms are expected to be added to this category by end-2012.

Outlook
While Goa continues to be a preferred destination among global travellers, many newer destinations like Malaysia and Singapore are offering attractive holiday packages as well. Besides this, Goa had already witnessed a slowdown in September 2008 due to the global crisis and reported untoward incidents arousing safety concerns among foreign tourists. While the hotel industry was waiting see whether the markets would pick up in Nov-Dec, the recent attacks on Mumbai have only led to a further slump in the market, especially among the premium category segment. However, some hoteliers are still optimistic that new year parties in Goa will attract a larger number of domestic tourists due to the packages offered. To attract the global market, various other avenues need to be explored in addition to improving the infrastructure facilities of the southern part of the state. Given the fact that Goa has world heritage architecture and rich flora-fauna, as well as potential for eco and medical tourism, it could be promoted to not only the foreign market, but the domestic segment as well. While many of the upcoming hotels may benefit by business brought in by the 2010 common wealth games, sustainability would be a primary concern in the long run. Many developers are already reconsidering plans of hotel projects, due to the current crisis and slowdown across the market.

4-star Hotels
There are a total of 253 rooms in the 4-star category. While the ARR in the 4-star category ranged between Rs.4,800-5,500 for the year FY 2007-08, this segment recorded a reduced ARR of Rs.3,500-4,200 since August 2008. These hotels recorded occupancy levels of 75-80% in FY 2007-08. However, occupancy levels in these hotels have also reduced considerably over the past 6-7 months, dropping to around 56% in the 4-star categories since August 08. Domestic tourists constitute 65% of the total tourists in these hotels and hence this may be one of the reasons why the hotels have not been as badly affected as the other premier hotels. Approximately 550 new rooms are expected to be added to the total 4-star category stock by end-2012.

Category-wise ARR
20,000

15,000

Rs.

10,000

Budget Hotels
The budget category of hotels is increasingly gaining prominence among the leisure as

5,000

well as business travellers. Occupancy levels in the budget hotels were in the range of 56-62% in FY 2007-08. While the premium
Budget 5-star Deluxe 5-star 4-star

0

segment hotels are witnessing a significant drop in occupancy levels, most of the budget hotels have recorded 10-20% drop in demand. Though the city hotels witnessed

Minimum Source: Knight Frank Research

Maximum

17

Q4 2008

INDIA HOTEL
Review

BEngalUrU
Figure 20

Most of the prominent developers in the city like Brigade, Adarsh, Sobha, Nitesh and Prestige have entered the hotel market through joint ventures with domestic and international brands to develop hotels in the premium and business categories. The city is experiencing an influx of international brands like Hilton, Shangri-La, Marriott, Ritz Carlton and West Inn to name a few. Most of the upcoming hotels are part of the integrated townships as it minimises the risk involved in the project. Another notable segment in the hospitality sector is the serviced apartments sector, which has been coming up across all quadrants in the city.

now been delayed due to the high land costs and construction costs. Hoteliers and developers have acquired huge land parcels on the Bellary Road in proximity to the new International Airport, as a result of which this region has a number of projects in the pipeline.

Movement in ARR (5D,5,4-star Hotels)
16,000 14,000 12,000 10,000 Rs. 8,000 6,000 4,000 2,000 0 2006 Q3 2008 2004 2003 2005 2007

5-star Deluxe and 5-star Hotels
The city has currently 2,212 rooms in the 5-star Deluxe and 5-star categories. Currently, the premium category hotels have ARR in the range of Rs.10,000 to Rs.18,000.However, the average occupancy over the year is 67% which reflects a dip of around 8% compared to last year. Among the existing hotels, Leela Palace increased its room inventory to 352 rooms, while the Park and Royal Orchid have been upgraded to the 5-star category. The city will have an additional supply of 3,359 rooms in the premium category by 2010. Imminent international brands under construction in the city centre include the Shangri-La, Ritz Carlton, Marriott and Hilton scheduled to be operational by 2009-10. Among the domestic brands, ITC Group is coming up with the ITC Gardenia at Lavelle Road with Prestige developers. In the peripheral locations of the city, international brands include the Shangri-La at the Sarjapur Outer Ring Road and the Radisson at Whitefield in the 5-star category which would be due for operation in the next year.

The State Government is taking initiatives to improve the infrastructure and promote the city as a hub to tourist destinations. Until now, the hotels were primarily concentrated in the city centre and its surroundings. However, the upcoming hotels are concentrically spread towards the peripheral locations of the city. Locations like Whitefield, Bellary Road and Hosur Road have huge hotel developments in the premium segment which would be operational in the next two years.

Source: Knight Frank Research

Figure 21

Occupancy Rate (5D,5,4-star Hotels)
100

80

Percent(%)

60

40

Current Scenario
The city has a total inventory of 3,823 rooms across all hotel categories. The city is expected to have a total supply of 5,800 rooms in the next three years. Many hotel
2006 Q3 2008 2004 2003 2005 2007

20

0

projects which had been announced in the last one year by prominent hotel groups have

Source: Knight Frank Research

Overview
Bengaluru, the intellectual capital of India with its diversified culture and cosmopolitan populace continues to be in the focus of international investors, developers, retail brands and educational institutions. A significant event in 2008 was the opening of the Bengaluru International Airport which is projected to enhance the global position of the city in terms of foreign investments, wider opportunities and foreign tourist inflow.
The Lalit Ashok, Bengaluru

18

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4-star Hotels
Bengaluru, being a predominant business destination witnessed an increase in the number of 4-star hotels in 2008.This segment has an existing room inventory of 1,611 which includes the five new hotels opened this year. The 4-star hotels in the city registered an ARR

Figure 22

Category-wise ARR
20,000

15,000

Rs.

in the range of Rs.5,400-7,500 with an average occupancy of 70% over the year. The cost cutting in the IT/ITES companies has had a severe impact on the business travellers to the city. Increase in flight costs and reduction in the number of domestic flights has also decreased the flow of domestic travellers to the city. Some of the prominent new hotels operational in 2008 include the Taj Vivanta at Whitefield Fortune, JP Cosmos at Cunningham Road and The Royal Orchid's, Ramada near Shivaji Nagar. In the east, the Savannah Sarovar Premiere and the Fortune Select Trinity started their operations at Whitefield. These hotels added 626 rooms in 2008 in the business category. Major international brands foraying into this segment are the West Inn at Hebbal, Shangri-La Traders hotel at Whitefield and the Renaissance at Bannerghatta Road. Domestic players in hospitality industry are also expanding their presence in the city which includes the Trident at the International Airport, the Taj Group coming up with a hotel at Yeswanthpur and Lemon Tree at St. Johns Road. There would be a total supply of 1,587 rooms in the next three years.

10,000

5,000

0 Budget 5-star Deluxe 5-star 4-star

Minimum Source: Knight Frank Research

Maximum

Fortune JP Cosmos, Bengaluru

developments and serviced apartments Brigade Road and the Radha Hometel at Whitefield. across all the micro-markets in the city. The booming healthcare sector is likely to promote medical tourism while heritage tourism would also enhance the growth of the city as a transit hub. The state has already two world heritage sites and few more heritage sites are expected to be added in the near future.

Outlook
Global recession has reduced the number of foreign tourists visiting the city. The aftereffects of the terror attacks at Mumbai led to a further slowdown in the hospitality sector. Occupancy rates have decreased further by 15-25% towards the end of 2008, while hotels across the city have reduced the tariff rates by 35-50%. Most of the hotels have decided to defer their Christmas and New Year celebrations this year. On the other hand, The F&B segment in the hotels have faced a decline due to increase in the number of stand-alone restaurants across the city. The Aero Show scheduled in February is expected to boost the occupancy in these hotels. However, the city may not witness an increase in the ARR levels and the occupancy levels in comparison to the last two years. Further, existing hotels are bound to face a competition in the next two years due to the upcoming supply in the market. The city skyline is projected to change in the next three years with the entry of international brands, mixed use

Budget Hotels
The decrease in flow of domestic tourists to city has had a significant impact on this sector as well. Most budget category hotels in the city centre recorded an average occupancy of 60%. This is primarily due to the presence of serviced apartments in the vicinity, which offer competitive rates for long stay durations. At present, these hotels have an ARR of Rs.2,800. Hotels operational in the last year include the Confident's Iris at

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INDIA HOTEL
Review

hyderabad
Figure 23

Hyderabad Metropolitan Development Authority (HMDA) which encompasses an area of over 6,300 sq. kms with a population of 6 million. With this move, Hyderabad has become equivalent size-wise to the other important metropolitan cities in the country. The city's growth has also led to the resurgence of the hotel industry. The expansion of the IT/ITES sector, launching of the new international airport at Shamshabad and various other infrastructure initiatives by the government have resulted in an increased inflow of both tourism and business travel to the city. Apart from the IT/ITES sector, other major sectors like biotechnology, pharmaceutical and medical tourism have

the occupancy levels and ARRs among all categories of hotels. However, the premium hotels in the city have managed to maintain a steady occupancy level with a number of conferencing and sporting events this year, notable amongst them being the PATA Conference, ICL and the India Aviation Meet which took place recently.

Movement in ARR (5D,5,4-star Hotels)
12,000

10,000

8,000

5-star Deluxe and 5-star Hotels
Coupled with strong commercial/ retail base, high-end residential catchment and proximity to the old international airport, locations like Secunderabad, Begumpet, Somajiguda and Banjara Hills witnessed a high concentration of the hospitality sector catering to the demand. There are a total of about 37 hotels in the city with an inventory of 3,949 rooms of which there are eight hotels in the 5-star and 5-star Deluxe category contributing to 39% of the existing total inventory. These hotels cater to about 70% of the total business travelers to the city. Majority of the 5-star hotels are located in the CBD and Off-CBD locations. The ITC Kakatiya and Fortune Manohar are located at Begumpet while the Taj Krishna, Taj Banjara and Taj Residency are located at Banjara Hills. Other premium hotels include the Hyderabad Marriott located at Tank Bund Road and the Novotel Hotel at Hitec-City. A number of hoteliers have leveraged the advantages involved with the shift from the existing CBD to the new CBD (Madhapur and Gachibowi), as well as the development of

Rs.

6,000

4,000

2,000

0 2006 Q3 2008 2004 2005 2007

also contributed to a strong growth in the hospitality sector. In a significant step, Accor opened the largest convention centre in the city in 2006, which propelled Hyderabad's status to that of a preferred destination for meetings and conventions. Since then, there has been an annual increase of 12-14% observed in foreign and domestic corporate travelers to the city.

Source: Knight Frank Research

Figure 24

Occupancy Rate (5D,5,4-star Hotels)
90 80 70 60 Percent(%) 50 40 30 20 10 0 2006 Q3 2008 2004 2005 2007

Current Scenario
The current global economic situation and hike in the fuel surcharges creating an adverse impact on the IT sector, led to a decline in travel plans as well as major cost cutting by the companies. Besides these challenges, the infusion of an additional 500 rooms this year further increased pressure on

Source: Knight Frank Research

Overview
Hyderabad, the capital city of Andhra Pradesh, popularly known as 'The City of Pearls' is one of the fastest growing metropolitan cities in the country with a growth rate of 32%. It is the 5th largest city in India with its urban agglomeration comprising the three cities of Hyderabad, Secunderabad and Cyberabad. Recently, the Government of Andhra Pradesh formed the
Taj Krishna, Hyderabad

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Outer Ring Road, which would result in increased connectivity to the airport. The latest entrants to the hotel market this year in the premium segment have been Ista and Ella Compass Suites, besides the Airport Hotel launched by the Accor Group which is also the first transit hotel near the Shamshabad

Figure 25

hotels cater to 75% of the business clientele and pharmaceutical companies which are the major feeders to this segment. The existing inventory of the budget hotels is 1,905 keys, contributing towards about 48% of the total room inventory in the city. Compared to the 5star and 4-star hotels, the budget hotels managed to maintain a steady ARR of Rs.3,800 during the current year. However, these hotels, too, have shown a decline in the occupancy levels by 10% this year when compared to 2007. The upcoming supply in this category adds up to 21% out of the total supply by 2012. the latest entrant to the
Budget 5-star Deluxe 5-star 4-star

Category-wise ARR
12,000

10,000

8,000

Rs.

International Airport. Out of the upcoming total supply of 8,142 room keys across all categories, the premium segment would contribute a major share of 70%. Most of these developments are spread across the new CBD and the peripheral regions of Kukatpally, Shamirpet and Uppal. These locations will add a supply of 3,572 keys in 13 hotels. The prominent hotels in the pipeline include Westin, Hilton Garden Inn and Aditya Sarovar Premier. Another notable hotel project is being developed by the Dubai-based Emaar Group. Also, the old CBD had Taj coming up in Begumpet, Fairmont at Ameerpet, Marriott Courtyard at Tank Bund, the Park Hotel at Somajiguda and three other hotels with a supply of 1,385 keys. Taj is also launching a heritage hotel called Taj Falaknuma at Old city which has connectivity to the new international airport and targets the high-end tourist populace to experience the Nizam royalty. The Off-CBD at Banjara Hills will add to 22% of the supply with the presence of hotel chains like Hyatt, Leela and Hilton. The vibrant growth in the economy during FY 2005-07 resulted in substantial growth in the hotel sector, which witnessed a growth rate of 16% in occupancy levels, thereby leading to 35% escalation in the room tariffs. Owing to the demand-supply mismatch, the existing hotels enjoyed occupancy rates and high as 82-85% and an ARR of Rs.8,102 in the premium segment. However, additional supply infusion of 500 rooms this year, coupled with the slowdown in the market and increasing inflation, have resulted in occupancy rates to decline to about 65%, while the ARRs have come down to Rs.6,674.

6,000

4,000

2,000

0

Hyderabad hotel market this year has been the One Place Hotel at Kukatpally.

Minimum Source: Knight Frank Research

Maximum

Outlook
With an upcoming supply of over 8,000 rooms by 2012 there is a possibility of an over supply in the market. While on one hand, this is likely to increase the level of competition among the hotels, on the other hand, the surge in supply is expected to reduce occupancy levels and ARRs with most of these hotels becoming operational in the next few years. At present, many developers who had planned projects are now postponing construction activity due to the slowdown in the market. Since the existing hotels would have an advantage in the market, the upcoming ones would need to formulate a new stratagem to compete and create a niche for them in the market.

4-star Hotels
There are about four 4-star hotels, including the Green Park and Katriya Towers, concentrated in the old CBD. The existing inventory of the 4-star hotels is around 503 rooms contributing to 15% of the current stock. The ARR in this category was in the range of Rs.4,000-4,500 in the year 2007. Owing to the market slowdown, there has been a 5% decrease in the ARR this year, compared to last year's values, which ranges from Rs.3,800-4,250. The occupancy rates have also shown a 5% decrease since the last year and currently stand at 77%. The upcoming supply in the 40-star category contributes to around 814 room keys, scheduled to be operational by 2012. The prominent hotels in the pipeline in this category include The Park at Somajiguda and few other projects by independent players like VA Hotels Pvt. Ltd at Banjara Hills.

With the recent terrorist attacks in Mumbai, the hospitality industry in Hyderabad has seen a considerable effect on its business. There has been an incremental cancellation of 15% seen in the week post the attacks and a decrease of 10% in the occupancy rates. On a positive note, the bookings for January onwards have not been cancelled and hopefully the situation can be reviewed faavourably after the New Year's Eve.

Budget Hotels
There are several hotels in the budget category which are concentrated in the old CBD of Secunderabad, Begumpet and Lakdikapul in proximity to the railway station and major bus stations. With the commercial base still intact in the old CBD, the budget

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INDIA HOTEL
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Chennai
Figure 26

commands over 16% share of India's total IT exports which is indicative of not just local talent retention but also the abilty to pull skilled professionals from other parts of the country. This has had a positive effect on the demand for quality hospitality services in the city over the past couple of years.

developing as an attractive destination for international tourists and upper-end domestic leisure travellers. Premium hotels in the location include Fisherman's Cove and GRT Temple Bay.

Movement in ARR (5D,5,4-star Hotels)
8,000 7,000 6,000 5,000 Rs. 4,000 3,000 2,000 1,000 0 2006 Q3 2008 2004 2003 2005 2007

Current Scenario
The Chennai hotel industry is expected to see a steady growth in terms of room supply predominantly in the business traveller segment. The rise in hospitality standards demanded in the city has led to the need of properly managed and better organised hotels to increase their efficiency and provide better quality. Many of the Indian hotel groups are planning to come out with joint venture hotel projects wherein their role would be restricted to operations and the property would be given to them by the landowner on a long term lease. Chennai attracts negligible leisure traffic annually, so this segment does not contribute significantly to the hotel room demand. Currently there are 3,462 rooms available in the city with an additional supply of 3,726 rooms to come up in the next three years, a cumulative growth of 24% from the present. The IT corridor of Chennai, i.e Rajiv Gandhi Salai, as well as erstwhile industrial locations in the city like Guindy, Ambattur and Padi, has a large catchment of IT/ITES companies with a strong requirement for boarding/lodging/conference which would expectedly be responsible for captive demand in these areas.

An important factor which has contributed to the growth of the hotel sector in the city is the initiative by the government on development of city infrastructure. Projects pertaining to development of Metro Rail and an Outer Ring Road are likley to decongest the city whereby improving the connectivity. These developments are expected to attract more companies to set up their bases in the city and thereby adding to the demand for the hotel sector in the long term. The hotel industry in the city has traditionally been concentrated around the Central Business District (CBD) in the locations like Nungambakkam, Cathedral Road, T Nagar and Radhakrishnan Salai. These micromarkets boasts of hotels such as ITC Hotel Park Sheraton and Towers located at TK Road, The Park and Courtyard Marriott at Anna Salai and Chola Sheraton at Cathedral Road. Although the CBD has been a traditional base for hotels in the city, currently it is the peripheral locations like Rajiv Gandhi Salai, GST Road and Velachery which are witnessing strong developmental activity in the hotel sector. The East Coast
2006 Q3 2008 2004 2003 2005 2007

Source: Knight Frank Research

Figure 27

Occupancy Rate (5D,5,4-star Hotels)
80

75

70 Percent(%)

65

60

55

0

Road which runs parallel to the IT corridor and which connects Pondicherry is

Source: Knight Frank Research

Overview
Chennai like other major metropolitan cites has a strong presence of reputed hotel chains with potential for further development. The demand for quality hotels, over the past couple of years, has been from the business travellers segment. The growth witnessed in this sector has been primarily as a consequence of the strong presence of IT/ITES industry. The city presently
Rain Tree, Chennai

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Thus, these locations have good potential for becoming prime business hotel destinations in the future.

Figure 28

This decline has created a level of uncertainty which is expected to have a negative impact on the hospitality industry in the city. With more than 3,700 rooms to come up in

Category-wise ARR
10,500

5-star Deluxe and 5-star Hotels
In the premium category, which constitutes the 5-star deluxe and 5-star segment, the city
Rs.

8,500

the next 3 years Chennai could witness an oversupply in the hotel sector, as this will be in sharp contrast to stagnant demand expected for the same. This aspect is expected to put pressure on the room occupancy rate post 2008. Due to this reason majority of the hotels which are still in their land acquisition and planning stage for their future projects have stalled the
5-star Deluxe 5-star 4-star

6,500

has 11 hotels with an inventory of around 1,829 rooms. Around 65% of the premiere clientele are business travellers and room rentals are the key revenue earning segment, constituting 64% of the total revenue. This category has been relatively less affected by correction in the market as they cater to high profile clients who generally provide repeat business. The current ARRs across this segment is around Rs.8,350 with an average occupancy level of 67%. The occupancy level has shown a 2-3% dip as compared to the same time period in the previous year. Within the next 4 years 10-12 new hotel projects in the premium category with approximately 2,000 rooms is expected to be launched in Chennai which will increase the supply in this segment to about 3,753 rooms. Few established groups like ITC Group of hotels and the Taj Group of hotels are planning to add more new properties in the same city. Other groups like the Hilton group of Hotels, JW Marriot Hotels, Bharat Hotels as well as Sarovar's Hometel Hotels are in plans of establishing their brand in the hospitality segment in Chennai. Prominent projects coming up in the city include ITC's The Grand Chola Sheraton and The Leela Palace by Leela Group.

4,500

2,500

0

announcements of new projects. The 4-star categories which predominantly service business clientele are expected to be affected by this downturn in property prices, with a major dip being expected in their occupancy and revenue. This would signify the establishment of a buyer's market in the hospitality sector resulting in hotels offering competitive rates and attractive packages to garner business. On a positive note the market correction being witnessed can also be seen as an opportunity by land investors to invest in property at values substantially lower than that which it was being transacted over the past couple of years. This could spawn a lot of land acquisition for all major sectors including hospitality.

Minimum Source: Knight Frank Research

Maximum

caters to business clientele. This segment is currently witnessing ARRs of Rs.5,500 with occupancy levels of 69.8%. In the 4-star category a little over 1,700 rooms are expected to come up in the next three years but since a majority projects in this segment are at planning stage the timelines for completion are not fixed and could be delayed further. Prominent projects under construction include Hometel by the Sarovar Group and Lemon Tree Hotel by the Lemon Tree Group of hotels.

Outlook
The strong economic growth witnessed in the hotel sector in Chennai over the last couple of years had resulted in a lot of projects being announced over the past year, but the current slowdown being witnessed in the property market has resulted in a decline in price levels. Added to this, the recent terror attacks in Mumbai and threats to other metropolitan cities including Chennai has led to a lot of apprehension and concern in the hospitality segment in the country. As a consequence of this the hotel demand across all segments is expected to drop drastically.

4-star Hotels
Hotels in the 4-star segment constitute the business class hotels in the city, predominantly located in the CBD and OffCBD locations. Till a year back they were witnessing steady growth fuelled by the rise of the services sector, particularly IT/ITES. But of late they have been witnessing a dip due to market correction. Currently there are 11 hotels in this category with an inventory of 1,633 rooms and about 78% of this segment

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INDIA HOTEL
Review

KOCHI
Figure 29

Currently, this port city of Kerala is also a growing centre of Information Technology, finance, logistics, health services, ship building and international trade and is thus regarded as one of the fastest growing Tier-II cities in India. The economy of the city is strong due to the presence of the Kochi port which plays a pivotal role in the exports sector in the south. In the last two years, the city has witnessed a huge growth in the real estate sector with the entry of national developers like DLF, Sahara, Purvankara and Sobha all of whom are coming up with massive projects along the Seaport-airport Road, Kakkanad and NH-47 bypass locations in the peripheral locations of the city. Demand for housing from the IT sector and expatriates has made Kochi an attractive investment destination.

The concept of serviced apartments is slowly making its way into the market owing to the increase in the period of stay of tourists in the city.

Movement in ARR (5D,5,4-star Hotels)
4,500 4,000 3,500 3,000 2,500 Rs. 2,000 1,500 1,000 500 0 2006 Q3 2008 2004 2003 2005 2007

Heritage Hotels
Heritage hotels have been increasingly finding favours in the city with developers and hoteliers entering this segment to cash in on the tourism potential. The Kerala Government had declared Fort Kochi, Mattanchery, Fort Vypeen and Willingdon Island as integrated heritage zones, triggering a series of hotel developments in these locations over the past few years. The hotels located here provide an ethnic atmosphere with Ayurvedic and spa facilities with easy access to the traditional spice markets, the Jew Street and the beach front. Heritage hotels had an average occupancy of 65% over the year. Notably, DLF Group has purchased property belonging to Aspin Wall with a proposal to build a heritage hotel here.

Source: Knight Frank Research Figure 30

Occupancy Rate (5D,5,4-star Hotels)
72 70 68 Percent(%) 66 64 62 60 58 2006 Q3 2008 2004 2003 2005 2007

Current scenario
Kochi's hospitality sector continued to grow steadily over the year. The city is witnessing a shift from being a transit point and a leisure destination to a business destination, as a result of which the MICE segment is becoming one of the major revenue generators for hotels across the city. Ayurveda continues to fuel the growth of medical tourism in Kerala. The Special Heritage Zone at Fort Kochi continues to increase its room inventory with a number of old structures being converted into heritage hotels over the years.

5-star Deluxe and 5-star Hotels
Presently, the city has an inventory of 580 rooms in the premium category. Taj Malabar and Le Meridien are the only two hotels in the 5-star Deluxe category. The Le Meridien, with its huge banquet facilities, caters to a significant proportion of the total MICE segment in the city, while Taj Malabar at Fort Kochi is responsible for accommodating 60% of the total tourists from the foreign leisure segment.

Source: Knight Frank Research

Overview
Kochi City, the headquarters of Ernakulam district, is the hub of tourist activities in the district and is a major tourist destination in Southern India. The Cochin International Airport has the fourth largest international passenger traffic in India and serves as the transit point for foreigners who travel to the surrounding tourist destinations, namely Alappuzha, Thrissur, Munnar and Thekkadi.
Bolgatty Palace, Kochi

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The Trident was upgraded to a 5-star hotel in this financial year. Hotels in this category registered an 11% increase in ARR of over the last year, with a current ARR of Rs.5,375 in 2008. The hotels in the premium segment had an average occupancy of 54% over the year. An addition of 1,081 rooms in the premium category is expected in the next two years. Of the upcoming supply, note can be made of the Le-Meridien adding another 150 rooms to its existing property at Maradu. A number of hotel projects are being developed along the NH -47 Bypass, which can be primarily attributed to land availability, its proximity to the Infopark and in speculation of the upcoming Smart City Project at Kakkanad. Amongst other developments, the Intercontinental Hotel Group made their foray into the city with two projects, including a Crowne Plaza hotel with KGA Group at Maradu. Another project under construction is a mall-hotel development by the Marriott Group at the Lulu Mall Hotel at Vytilla Junction. All these projects are in the premium category and are estimated to be completed in the next 2-3 years. Hampshire is coming up with its second property in India located at Elambakam. The hotel will be operational by end-2009. Other proposed hotels include the DLF-Hilton Hotel at Marine Drive and the Gateway Hotel of IHCL in a tie-up with the Muthoot Group.
Taj Malabar, Kochi

Budget Hotels
The city has a substantial stock in the budget segment that accommodates the domestic travellers to the city. Most of these hotels in the city are strategically located along the MG Road stretch, the CBD of the city, due to which hotels here have a comparatively higher occupancy. Currently, these hotels are recording an average occupancy rate of 75%. The Abad Group has three of its budget hotels operating in the city. The hotel group also has an airport hotel in the vicinity of the international airport to accommodate intransit travellers. At present, the budget hotels of the city have an ARR of Rs.1,975. An important upcoming development in this segment includes the Avenue Standard Hotel located at Panampilly Nagar

Outlook
The tourism industry has been affected this year due to the onset of the economic recession across the globe. The international ocean marathon- Volvo Ocean Race, made a stopover in India for the first time this year at Kochi. The event was held at the Cochin Port during the first week of December, and was expected to change the hospitality landscape of the city with an expectation of more than 0.2 million tourists into the city. However, the terror attacks at Mumbai further have reduced the inbound foreign tourists this year. Owing to this, hotels have reduced the tariff rates by 10-15% during the peak season (October to February).

4-star Hotels
Kochi has four hotels in the 4-star category that are located at various nodes in the city and comprise a total inventory of 275 rooms. Of the total number of travellers to these hotels, around 65% belong to the domestic business class. Hotels in this category have registered an average occupancy of 73% with an ARR of Rs.2,350 (till Sept 2008). This segment is projected to receive an additional supply of 383 rooms by 2009-10. This includes the expansion plans of Gokulam Park Inn of Sarovar Group which is adding another 40 rooms and banquet hall to its existing property at Kaloor. Another hotel mall development in the city is the Admiral Plaza located at Palarivattom by BCG Builders. Meanwhile, the Intercontinental Group's second venture into the city is a
Budget

Figure 31

Category-wise ARR
7,000 6,000 5,000 4,000

Rs.
3,000 2,000 1,000 0 5-star Deluxe 5-star 4-star

Holiday Inn brand with Indroyal Group located on the NH-47 bypass.

Minimum Source: Knight Frank Research

Maximum

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Q4 2008

INDIA HOTEL
Review

SERVICED APARTMENT
Serviced apartments are furnished apartment units that provide temporary accommodation characterised by a desirable blend of the private comforts of a home and full-scale amenities, a trait that makes this accommodation type very conducive for family life. Demand for serviced apartments primarily entails foreign company executives placed in India for specific assignments of varying lengths, and more recently NRIs who are relocating to India in progressively larger numbers in the wake of the global financial crisis. The spread of serviced apartments across India comprises both budget and high-end accommodation, an example of the latter being the luxurious units in the branded serviced apartments segment. The concept of serviced apartments, although only recently gaining momentum in India, has been prevalent around the world for some time now, particularly in regions with large expatriate populations such as Hong Kong and Australia. Developers in India, who until recently have been cashing in on the exorbitant growth of the hotel industry, are now waking up to the need for serviced apartments in India due to its sizeable expatriate population. A healthy proportion of serviced apartments' demand comprises accommodation demand emanating from the IT/ITES, KPO, biotechnology and medical tourism sectors. Bearing this in mind, developers might exercise caution as these sectors would certainly be adversely impacted by the global financial crisis. In addition to this, the future of the serviced apartments market in India is linked to that of the hotel industry, as the longer the current slowdown being experienced by the latter persists, the more inclined developers could become to explore alternative forms of hospitality. Below is a

summary of the serviced apartments market in select cities.

India in growing numbers in the wake of the financial meltdown in the US and Europe. In addition to this, the concept of serviced apartments is still a fledgling one, and the limited supply in Mumbai means there is little downward pressure exerted on rates. The major revenue generated from serviced apartments is in the form of rent, which is fixed at a daily rate, and food and beverage consumed. The range and quality of amenities offered determines other components. Besides, as customers typically move into these apartments with their families, the range of amenities offered are also targeted particularly to a family-oriented lifestyle. The Grand Hyatt Residences, for example, offers amenities ranging from a jogging track and retail stores to special entertainment programs for children. Currently, there is huge potential for serviced apartments to expand as a business in Mumbai, given the size of the floating population converging into the city. At present, the branded serviced apartments' category comprises 445 units. New projects are in progress, a notable example being Oakwood Apartments, a 62 room serviced apartment project coming up in Juhu. The coming year should witness the continued growth of serviced apartments' presence in Mumbai as the supply side becomes increasingly responsive to the significant potential for expansion of this concept.

NCR
Serviced apartment is the latest addition to the inventory of the NCR hospitality industry. The concept of service apartment is relatively new in the NCR market, with the Qutab hotel and the Ramada Plaza being the properties to recently initiate such services. Taking cue from the concept of serviced apartments which have enjoyed huge popularity in other macro markets, big brands like the Marriott, Oberoi's, Oakwood, Westin, Leela, Claridges and Crowne Plaza are keenly looking to launch such projects across the NCR market. The Leela's Residency with an inventory of 90 rooms and The Marriott's executive apartment with an inventory of about 170 rooms are examples of some upcoming projects. The room inventory of the NCR hospitality market is expected to increase by more than 500 serviced apartment rooms, in the forthcoming one year. Service apartments are expected to clock a year-round occupancy and an average stay of 2.5 to 3 weeks, reflecting the high demand for such developments.

Mumbai
There are five branded serviced apartments in Mumbai, namely, Taj Wellington Mews, Lakeside Chalet Marriott Executive Apartments, Grand Hyatt Residences, Grand Residences at the Intercontinental Hotel and the apartments at Best Western called The Emerald. Currently, the average revenue amongst the high-end branded serviced apartments is Rs. 15,670 per unit per night, while the average occupancy is 72.6%. Occupancy amongst the branded serviced apartments in particular has been stable largely due to the slow pace of transactions and exclusivity of demand catered to. Going forward, demand in this segment is expected to be strong, as the profile of customers primarily comprises corporate heads and NRIs, the latter of which are relocating to

Bengaluru
The advent of the IT/ITES sector into Bengaluru and the consequent globalisation led to the growth of the serviced apartment sector in the city. Low supply and huge demand for hotel rooms in Bengaluru led to the hotels in the high-end luxury segment charging as high as Rs.17,000 which led corporates to look for an alternative economic stay. The emergence of serviced apartments came as a relief for companies which are headquartered in Bengaluru, as this provides a cost effective accommodation for trainees and other employees travelling

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into the city for a longer stay. Though most serviced apartment owners target corporate guests, there is also a requirement from families regarding accommodation either for a wedding or for availing the special healthcare facilities in the city.

apartments with tariffs ranging between Rs.1,500 for a single bedroom and Rs.3,000 plus per day for a three bedroom.

one being that 4-star hotels offer better facilities for a marginal increase in price as compared to serviced apartments. Secondly, the fact that most of the major IT/ITES companies have started to construct their own apartments/ guest houses in order to facilitate the accommodation need of their employees have also deterred the growth of serviced apartments in the city. The current ARR, which is around Rs.2,200, and average occupancy rate at approximately 50%, stands testimony to low growth in this segment.

Hyderabad
The demand for the IT sector to provide accommodation to their employees, shortage of rooms coupled with high tariffs were some of the primary reasons that led to the development of serviced apartments in Hyderabad. Given the increased demand, many unbranded service apartments have surfaced in locations such as Banjara hills, Jubilee hills and Madhapur. In total, there are more than 150 serviced apartments and guest houses in the city with an ARR of Rs.2,500. The average occupancy in service apartments is around 95% of which almost 40% comprises business travellers. Currently due to a slowdown in the market, many companies are opting for their own guest houses or apartments resulting in the closure of several small serviced apartments. Further, the reduction in the rack rates in the premier hotels is likely to impact this sector in the near future. These apartments would need to provide service on par with those of a 5-star or 4-star hotel in order to maintain a high occupancy level. The two notable upcoming serviced apartment projects are that by Lanco City in Manikonda and Raheja Mindspace in Hitec-City with 120 and 220 apartments respectively.

In Bengaluru, serviced apartments are usually clustered within proximity of the prominent office market locations in the city. Locations such as Indiranagar and Koramangala are still the preferred locations besides the Central Business District areas as the commutable distance is only 2-3 km. However, with the growth of IT sector at Whitefield, Sarjapur Outer Ring road, Inner Ring Road and Electronic city, parallel to the growth of the hotels, serviced apartments developed across all these micro-markets. Initially, developers who had a couple of apartments vacant after selling the residential flats, converted them into serviced apartments as common amenities like swimming pool, parking and security were available at these premises. Foreseeing the demand for this sector, developers have tied up with hospitality players to come up with serviced apartments with a number of support facilities such as guest lounge, swimming pool, health club, restaurant, etc. Major players in this sector are the Chalet, Brigade Homestead, Sterling Suites, Mayflower and Oakwood residences. Oakwood along with Prestige developers started their operations at UB City in October this year. Major upcoming developments under international brands include the Accors-Mercure homestead residences with the Brigade Group at Koramangala, Hilton Residences with the Embassy Group at the Embassy Golf Links Park and the Shangri-La with the Adarsh Group at the Sarjapur Outer Ring Road. The room rates of serviced apartments vary quite significantly based on the location and duration of the stay. Top line service providers like Oakwood have tariff rates as high as Rs.7,000-10,000, while middle-line providers charge between Rs.4,000-6,000. There are also serviced

Pune
The demand from the domestic long-stay business travellers to Pune has greatly increased over the years. This is evident from the fact that most of the serviced apartments in the city have occupancy levels as high as 85-88%. At present, there are 8 serviced apartments operational in Pune with an inventory of 391 rooms. The current ARR values are in the range of about Rs.4,000Rs.6,000 depending on the services offered. Amongst the key serviced apartment projects, Royal Orchid Golden Suites is a 71 room property of which around 30 rooms are already operational. Seasons is another serviced apartment project at Koregaon Park with 23 rooms while Bel-Air in the same location is a residential apartment-converted into service apartments project. Around 7 serviced apartments are proposed with an inventory of 987 rooms, scheduled to be operational by the year 2012. Eastern Pune has the maximum supply, to the tune of about 400 rooms in 4 projects. After the Seasons Apartments in Aundh, the Orchid Group plans to launch its serviced apartment project on Nagar Road. The Hyatt Group is coming up with a serviced apartment property along Nagar Road as well. Oakwood will launch their second property in a year's time at Koregaon Park Annex. Both these properties are expected to be 5-star properties.

Chennai
Serviced apartments in Chennai are relatively a new phenomenon and currently there are only two reputed serviced apartment chains, namely Star City and Blossoms, operational in the city. The growth of this segment largely depends on business that can be provided by the IT/ITES sector. Geographically this implies that the development of serviced apartments would be in the southern and western parts of the city which houses most of the IT/ITES firms. Two factors have affected the growth of serviced apartments in the city,

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Q4 2008

INDIA HOTEL RESEARCH
Review

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