Delhi hotels far from being able to benefit from rising big-ticket events business

Ayush Dabas, owner of Welcomhotel by ITC Hotels in Dwarka, Delhi, would like to expand the facilities at his property to cater to the growing demand from big-ticket MICE (meetings, incentives, conferences and exhibitions) events, but is unable to do so because the existing norms make it “unfeasible”.

“In 2014, Delhi Development Authority (DDA) increased the floor area ratio (FAR) for hotels from 225 to 375, an over 60% increase. But, that has become a paper exercise as technically, hotels are unable to increase FAR because the development norms of parking and ground coverage were not relaxed,” said Dabas.

“The FAR rates for hotels for adding new supply are also four to five times that of commercial establishments. The business for commercial establishments is a much more stable business with a fixed stream of rentals which can sold or discounted by banks. The hotel business on the other hand is cyclical, and less stable, more capital intensive with lower returns and the capital markets for hotels unlike commercial are non existent," he added.


Dabas said there is talk of India pitching for the COP-33 summit, and bidding for the 2036 Olympic Games and the Delhi airport becoming one of the largest in the world with the opening of a new T1. “But, if hotels are unable to add new supply, the city will become unaffordable for travelers. It takes four to five years to build hotels, and supply can’t be added overnight,” he added.

According to industry body Federation of Hotel & Restaurant Associations of India (FHRAI), given a lacklustre addition of supply over the past 10 years and a similar situation being foreseen going ahead, hotels in Delhi run the risk of running out of rooms, or becoming unaffordable in case of big ticket events.

Other industry insiders said several significant impediments contribute to the dearth of new supply in Delhi’s hospitality sector.

Pradeep Shetty, president, FHRAI, told ET FHRAI has written to the Ministry of Housing and Urban Affairs on the matter. He said DDA had notified a policy in April 2014 for an increase in the floor area ratio (FAR) for hotels. However, despite more than 10 years since the formulation of the policy, no hotel in Delhi has been able to enhance the FAR.

As per the 2023 Hotelivate Trends & Opportunities report, between 2013-14 to 2022-2023, markets such as Bengaluru, Agra, Goa, Chennai and Kolkata saw an uptick in supply by 51%, 72.5%, 87.2%, 37.3%, and 124% respectively compared to 20.5% for New Delhi.

As per the report, Bengaluru has overtaken New Delhi to become the largest hotel market in India in terms of inventory, and while Mumbai added lesser supply at 13.4%, going forward, with a larger proposed pipeline, Mumbai is likely to overtake New Delhi to become the second largest hotel market.

Mandeep S. Lamba, president and CEO (South Asia) at HVS ANAROCK said the hotel sector in New Delhi, currently with nearly 15,000 branded hotel keys, has experienced a modest supply growth at a CAGR of 1.4% since 2014. “The sluggish supply growth in New Delhi, combined with a rise in demand has led to a demand-supply imbalance which is expected to become significant over the next few years, thereby boosting both average room rates and occupancy rates,” he added.

According to Lamba, the main ⁠hurdle for supply growth has been the lack of land availability in Grade A locations. "The last significant land allocation in the city was at the Aerocity, which has now been fully absorbed. This has spurred hotel supply growth in nearby areas such as Gurugram," he added.

Nandivardhan Jain, founder and CEO of NOESIS Capital Advisors said the exorbitant cost of land in the capital renders many projects financially unviable, resulting in diminished return on investment vis a vis other asset classes like retail and office spaces. “Hotel projects entail high capital expenditure and protracted gestation periods, typically spanning three to four years for development and an additional two years for business stabilisation,” he said.

“The financial viability of such projects is further hampered by the costs associated with debt and its tenure which often deter potential investors. Additionally, the limited floor space index available for development in comparison to other metropolitan areas exacerbates the challenge of expanding the hospitality infrastructure in Delhi,” he added.

Jain said regrettably, Delhi’s proposed new growth lags behind several key markets such as Bengaluru, Mumbai and Kolkata. “This disparity underscores the urgency for concerted efforts to address the prevailing challenges and incentivise investment in the hospitality sector to sustain Delhi’s competitiveness in the market,” he added.