Supply of new hotel rooms in India is set to slow sharply in the next few years because of capital starvation and a shift in investment from hotel projects to other real-estate assets that offer quicker returns, say industry executives.
Addition of rooms in the organised hotel sector has already slowed down due to an oversupply in the market and a drop in average room rates, which has turned investors away. After expanding two-and-a-half times between 2006 and 2013, fresh supplies to grow at a much slower pace of 32% during 2013-17 as per a report in ET.
The supply of rooms hitting the market now is from projects announced between 2009 and 2011. Most hotel owners are in a waitand-watch mode. An upcoming 5-star luxury hotel under development in Hyderabad, for instance, has been put on hold due to oversupply of rooms in the city and poor room rents.
India's economic slowdown has been a factor hurting the industry in tier-I cites. Growth in gross domestic product softened to to less than 5% in fiscal 2013 and 2014, after expanding at near-doubledigit pace for several years. This has affected demand for rooms as well as made fundraising for new projects difficult.
"In Hyderabad, for instance, only 40% of the entire project pipeline that was announced around 2008 is being constructed currently," says Yash Deep Sharma, director of Maha Hotel Projects, which has built hotels like Double Tree by Hilton in the south Indian city and is working on developing other five-star properties.
During the peak years, there was a lot of planned supply, but many constructions were halted when the average room rates started to fall. Cyrus Madan, assistant vice president, development and feasibility, at Lemon Tree Hotels, says supply will dry up in the coming years. Even on the hotel management contract side, fresh contracts have fallen by 15-18%, he says.
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