Hotels take a realty check on management
Taking cue from global trends, the domestic hotel industry has begun to increasingly venture into purely hotel management contracts with real estate developers for running hotels rather than locking investments in the properties.
By Lijee Philip, TIMES INTERNET NETWORK |
MUMBAI: Taking cue from global trends, the domestic hotel industry has begun to increasingly venture into purely hotel management contracts with real estate developers for running hotels rather than locking investments in the properties.
Domestic hotel companies like East India, Indian Hotels and ITC are talking to both Indian and global developers to manage and run hotels. Recently Hotel Leelaventure announced plans to enter into management contract with developers in Dubai, Abu Dhabi and Colombo. Globally, hotel chains prefer to manage rather than invest in properties.
Rising real estate prices have made it more viable for companies to enter into management contracts. Says Ratnesh Verma, area vice president, south east Asia, Hyatt International Hotels & Resorts, ”most of the global hotel chains have management expertise and real estate developers want to maximise returns from the property, so this becomes a perfect marriage. Hotels are interested in focusing on their core competence.”
To set up a 5-star deluxe hotel with 250-300 rooms will cost approximately Rs 300 crore, excluding the land cost. Added to this, the gestation period for a hotel varies between 3-7 years depending on where the project is coming up, in tier I or tier II markets.
So a management contract gives hotel chains an opportunity to expand without having any equity involvement and making huge investments. “Hotel companies get around 3-4% of the revenue and 5% of the profit to manage and run the properties. This works fine for most of the global hotel chains which are still unfamiliar with the existing market conditions and saves them from blocking huge funds ,” said Binaifer Jehani, analyst, Cris Infac.
Strong tourist inflows, business as well as leisure, on the back of a growing economy has fuelled a very strong demand for hotels in the recent past. “Management contracts enable hoteliers to venture into emerging markets without blocking huge funds,” said Manav Thadani, MD, HVS International, hotel consultancy firm. And with China a relatively mature market, hotel companies are now looking at India for fast growth.
Last financial year saw 4.01m tourist arriving in the country, up by 11% over last year and is expected to maintain the same level this year too. With occupancies in the range of 74-78% across the country, hotels are expected to increase room rates (ARRs) by 20-40% in the next few months, sources said. The buoyant economy growth in the aviation and real estate sectors is expected to fuel demand for hotels across star categories, sources said.
Domestic hotel companies like East India, Indian Hotels and ITC are talking to both Indian and global developers to manage and run hotels. Recently Hotel Leelaventure announced plans to enter into management contract with developers in Dubai, Abu Dhabi and Colombo. Globally, hotel chains prefer to manage rather than invest in properties.
Rising real estate prices have made it more viable for companies to enter into management contracts. Says Ratnesh Verma, area vice president, south east Asia, Hyatt International Hotels & Resorts, ”most of the global hotel chains have management expertise and real estate developers want to maximise returns from the property, so this becomes a perfect marriage. Hotels are interested in focusing on their core competence.”
To set up a 5-star deluxe hotel with 250-300 rooms will cost approximately Rs 300 crore, excluding the land cost. Added to this, the gestation period for a hotel varies between 3-7 years depending on where the project is coming up, in tier I or tier II markets.
So a management contract gives hotel chains an opportunity to expand without having any equity involvement and making huge investments. “Hotel companies get around 3-4% of the revenue and 5% of the profit to manage and run the properties. This works fine for most of the global hotel chains which are still unfamiliar with the existing market conditions and saves them from blocking huge funds ,” said Binaifer Jehani, analyst, Cris Infac.
Strong tourist inflows, business as well as leisure, on the back of a growing economy has fuelled a very strong demand for hotels in the recent past. “Management contracts enable hoteliers to venture into emerging markets without blocking huge funds,” said Manav Thadani, MD, HVS International, hotel consultancy firm. And with China a relatively mature market, hotel companies are now looking at India for fast growth.
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Last financial year saw 4.01m tourist arriving in the country, up by 11% over last year and is expected to maintain the same level this year too. With occupancies in the range of 74-78% across the country, hotels are expected to increase room rates (ARRs) by 20-40% in the next few months, sources said. The buoyant economy growth in the aviation and real estate sectors is expected to fuel demand for hotels across star categories, sources said.
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