B'lore tops in hotel rates as local prices climb over global levels

MUMBAI: Looking for a 5-star hotel accommodation, and forced to shell out Rs 18,000 ($400) for a day? The tight demand-supply scenario in the Indian hotel industry has reached unprecedented levels and the average room rate (ARR) has breached $400-level for the first time in cities like Bangalore.

Rates are, in fact ,much higher than the current average room rents in cities like New York, London and Singapore. While earlier, the average rates across the country hovered around Rs 6,500-7,000, now they are available for Rs 14,000-16,000 per day.

In cities like Bangalore, Agra and Jaipur, the room rates have even touched Rs 18,000-19,000 per day. As per data provided by the US PKF Hospitality Research, a consulting and real estate firm specialising in the hospitality industry, average daily rates (ADS) in the major cities in the US, such as New York, Honolulu, San Francisco, Long Island and Boston, vary between $108 and $200 per day.

While in Singapore, average room rates (ARR) hover around $150-200 per day. While Bangalore recorded the highest ARR ever at Rs 19,000 per day, with an occupancy rate (OR) of 79% in first half of ’06, Hyderabad registered the highest OR of around 82%.

Other cities like Delhi, Gurgaon, Chennai, Pune and Kolkata are also seeing a similar trend of fast growth in ARR and OR amid overall economic development and a nation-wide shortage of rooms. Going forward, the maximum jump in ARRs will happen in cities like Pune, Delhi and to some extent, Mumbai.

In Delhi, the current ARR is around Rs 7,500 per day which may touch Rs 8,900 by the end of the current fiscal while in Mumbai the ARR is around Rs 7,200 per day. “In the recent past, there was a surplus inventory in the market, and the prices were artificially low. Now the demand is picking up and across India, the prices have reached on par with international levels.

In Bangalore, the demand-supply gap is huge and the ARR is high,” said Vivek Nair, vice chairman and managing director, The Leela. In Bangalore, the availability of quality room is less than 2,000. Industry analysts say India is increasingly being looked at by global players to grow their business and domestic tourism is also looking up.

Foreign tourist arrivals (FTA) — of which the business class form more than half of the total coming to India — are rising at an unprecedented rate. After growing 18.7% in the last three years against the global rate of 8.1%, FTA in India touched 4.1m, a growth of 11% year-on-year in FY06 despite minor hiccups like the bird-flu scare.

“An increased business travellers and the shortage of quality rooms pushed the ARRs in India to a new high. Hotels in Bangalore and Hyderabad have benefited the most due to increased IT/ITES/BPO activities,” said Binaifer Jehani, an analyst with Crisil.

World Travel and Tourism Council (WTTC) forecasts tourist arrivals in India to grow at a 10% CAGR till ’12, one of the highest in the world, and considers India as one of the major and fastest growing tourist destinations in the world. Domestic tourism is rising due to easy availability of finance for holidays, reduced airfares and improving affordability.

However, despite being a global business hub and a major focus for developed countries, the current availability of 1.5 lakh registered rooms is low compared to one million rooms of our neighbour, China.

With skyrocketing real estate prices, many hoteliers like Indian Hotels and EIH are increasingly adopting the strategy of managing hotels also called a management contract, which involves less or no capital infusion and the company is paid a fee for its services. This improves the bottom line further. However, there is a caveat for investing in hotel stocks.