News: Indian hotels upgrading to five-star standards
(TNN 10/01/2007) Mumbai - For an average Indian consumer, a five-star hotel would be a luxury but it is turning out to be a necessity for the Indian hotelier.
Spiralling land prices in India are forcing several hotel companies to upgrade their three-star or four-star hotel projects to fivestar levels. Out of the 300 hotel projects recently approved by the government, 55% is understood to be luxury hotels, accounting for about $1.6 billion in investment.
One of the key reasons for this is the higher profitability and revenues that accrue from higher five-star hotel occupancies compared with low-budget hotels. Also, an upbeat demand for high-end hotels, especially in leading metro markets given the growing traffic of international tourists in a booming business environment, has fuelled the rush for such projects.
“Real estate firms with enhanced financial capabilities are jumping in to get land parcels at unheard of prices and the high land cost component is limiting their focus to luxury hotels. Midmarket and budget hotel projects need either a cooling-off in land prices or an assistance from government in form of lease or sops,” said Mr Saurabh Gupta, senior associate, HVS International, a global hospitality consulting firm.
Globally, land costs account for 15-20% of the total project cost. In India, the real estate component in the total project cost has shot up to 50% compared to 25-30% a few years back, and this has driven them to set up luxury rather than budget hotels. The new hotel properties are expected to add an additional 12,332 rooms in the luxury segment and 15,924 room in the five-star category out of a total 53,333 rooms in the various metro markets across the next 3-4 years.
Despite all the interest generated by mid-market and budget hotel development, developers in India still like to associate with fivestar deluxe brands because of the ‘snob value’ attached to it, say industry sources. The hospitality industry is currently witnessing unprecedented growth and the increase in revenue and profitability of most of the premium hotels is an indication of this, says Binaifer Jehani, analyst, Cris Infac.
A buoyant domestic and global economy indicates a continuous demand for hotel rooms across the country. Hotel companies in the recent past have hiked rooms rates by 20-40% and occupancy rates have been averaging at 74-78%. Interestingly the average room rate for a five- star is up 27% to Rs 7,000 in 2005-06 as compared to a three-star which is up by just 12% at Rs 2,050 a night.
Strong tourist inflows, business as well as leisure, growth in the aviation and real estate sectors on the back of a growing economy have fuelled a very strong demand for hotels. However, running a five-star hotel isn't as easy as setting up one. The luxury hotel segment is also characterised by its higher service orientation, which makes it particularly vulnerable to the manpower crunch, sources said.
Spiralling land prices in India are forcing several hotel companies to upgrade their three-star or four-star hotel projects to fivestar levels. Out of the 300 hotel projects recently approved by the government, 55% is understood to be luxury hotels, accounting for about $1.6 billion in investment.
One of the key reasons for this is the higher profitability and revenues that accrue from higher five-star hotel occupancies compared with low-budget hotels. Also, an upbeat demand for high-end hotels, especially in leading metro markets given the growing traffic of international tourists in a booming business environment, has fuelled the rush for such projects.
“Real estate firms with enhanced financial capabilities are jumping in to get land parcels at unheard of prices and the high land cost component is limiting their focus to luxury hotels. Midmarket and budget hotel projects need either a cooling-off in land prices or an assistance from government in form of lease or sops,” said Mr Saurabh Gupta, senior associate, HVS International, a global hospitality consulting firm.
Globally, land costs account for 15-20% of the total project cost. In India, the real estate component in the total project cost has shot up to 50% compared to 25-30% a few years back, and this has driven them to set up luxury rather than budget hotels. The new hotel properties are expected to add an additional 12,332 rooms in the luxury segment and 15,924 room in the five-star category out of a total 53,333 rooms in the various metro markets across the next 3-4 years.
Despite all the interest generated by mid-market and budget hotel development, developers in India still like to associate with fivestar deluxe brands because of the ‘snob value’ attached to it, say industry sources. The hospitality industry is currently witnessing unprecedented growth and the increase in revenue and profitability of most of the premium hotels is an indication of this, says Binaifer Jehani, analyst, Cris Infac.
A buoyant domestic and global economy indicates a continuous demand for hotel rooms across the country. Hotel companies in the recent past have hiked rooms rates by 20-40% and occupancy rates have been averaging at 74-78%. Interestingly the average room rate for a five- star is up 27% to Rs 7,000 in 2005-06 as compared to a three-star which is up by just 12% at Rs 2,050 a night.
Strong tourist inflows, business as well as leisure, growth in the aviation and real estate sectors on the back of a growing economy have fuelled a very strong demand for hotels. However, running a five-star hotel isn't as easy as setting up one. The luxury hotel segment is also characterised by its higher service orientation, which makes it particularly vulnerable to the manpower crunch, sources said.
posted by InCar Group Press Room at 22:15
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