Budget hotels seek room in malls

MUMBAI: Spiralling real estate prices and rising interest rates are forcing penny-conscious budget hotels to redraw their business strategy. A slew of budget hotel companies are talking to mall owners to locate their properties within mall premises.

Realty developers like DLF, Rahejas, Unitech and Ansals are talking to companies with plans to set up budget hotels. Over 40 budget hotels with 4,000-5,000 rooms are likely to come up in the next two years. Some of them are also thinking of moving their location from the heart of the city to the outskirts.

“This is an international trend which is catching up in India as well. One main reason is that mall developers are not getting enough response from the market and are entering into tie-ups with budget hotel companies to cover up the floor area ratio. For hotel chains, rising land prices are not affordable to set up stand-alone hotels.

It makes sense for them to tie-up with mall developers to set up budget hotels within the mall space,” Vinod Rohira, director (sales and marketing), K Raheja Corp, said. Sources said the Raheja group is in talks with various hotel brands to set up budget hotels in upcoming malls.

“This is a right method to use the excess FAR and a revenue generation segment for mall developers. In our upcoming malls we will consider this is as an option,” said, Rajiv Singh, MD , DLF Universal The “no-frills, self service” concept is fast catching up in the country With an average room rent (ARR) of Rs 1,000-1,500 per day, the rooms will have basics like central air-conditioning, TV, Wi-Fi, direct-dial phone, mini-fridge, etc, but no room or laundry service.

Says Ajoy K Misra, senior VP, Taj Hotels and Resorts, “Hotels have to cut cost somewhere.” Budget hotels are about value-for-money pricing, fewer staff, no-frills, but good service. While fewer staff and no-frills will ensure profitability, value for money pricing will ensure higher revenues, sources said.

Budget hotels are primarily targeting Tier-II cities and some of the metros as well, sources said. Several deluxe hotel chains are looking at the budget segment. It includes Golden Tulip, Sarovar Group, Radisson chain’s Country Inn & Suites, Accor’s Ibis, Ginger, Lemon Tree and ITC’s Fortune Park.

Indian Railways is also planning to build around 10 budget hotels across the country over the next three years to meet the tourism boom. “There is a huge demand supply mismatch in the hotel industry that needs to be filled. With increasing real estate prices, the budget hotels may have to relocate construction plans from inner cities to outskirts,” said Chender Baljee, CMD, Royal Orchid.

A buoyant domestic and global economy would indicate a continuous demand for hotel rooms across the country. Barring any extraneous circumstances that could dampen international travel, room rates and occupancy rates will rise in the immediate future.

The ARR are likely to go up by 20-40% in the next few months. Occupancy rates have been averaging at 74-78%.