Consulting firm HVS predicts a positive turn-around cycle for hotels across India

DELHI - HVS has released its prediction over the years to come and expect that an upward trend is likely to happen in the hotel industry in India. An upward cycle in the years 2005 to 2008 led to various hotel projects being announced across the length and breadth of India. With the consequence that supply began to grow quicker than demand, exerting pressure on markets across India starting 2009/10. In fact, new branded supply has grown at an average of 17% from 2008/09 to 2013/14. During that period, year on year growth in room-night demand did not diminish as it grew at an average of over 16% for the same period. However, this came at the cost of average rates declining at a CAGR of 6% during this cycle. Occupancies also went back to the late fifties. HVS experts expect 2013/14 is to close with a nationwide occupancy of about 57%.

What does the next cycle hold in store for India hotels’ sector? While there are a few known parameters that can be quantified, there are also some key learnings from the previous cycles that one can draw from in making assumptions for the future. The base of existing branded supply has grown from about 18,000 rooms in 1996 to about 108,000 rooms in 2013/14.

HVS has collated data that forecasts a 13% growth of branded supply in 2014/15, a 10% growth in 15/16 and a 6% growth in 16/17. A bulk of what was planned during the middle of the past decade has thus either already entered the markets or is close to opening in the next twelve to eighteen months. Developers and lenders are both wary of the sector, thanks to the hangover effect of the last few years.

Based on the various factors highlighted above, HVS assumes that the nationwide supply to grow further by only 5, 6 and 7% in 17/18, 18/19 and 19/20 respectively. The consulting firm expects then that branded supply to grow at CAGR 9% over the next six years. Demand, however, has continued to grow in the double digits for the past decade and in fact grew on an average of 13.8% year on year in the two previous cycles (twelve year average). It is due to continue growing at a similar pace over the next six years at an average rate of 13.5% growth in room-night demand (RPDs) for the considered period.

Branded supply will continue to get absorbed while demand is due to grow with double-digit figures over the next six years. However Average Room Rates (ARRs) may not see the 15% to 20% growth rates experienced in previous up-cycle. They are will most likely progress by at least 10% CAGR over the next six years, most of it in the latter half of the cycle.

India will soon have an election. While the result is not yet known and can’t be totally predicted, HVS estimates that it would not be entirely absurd to assume that the Modi led NDA alliance stands a fair chance of securing the mandate. This would bring changes in policy but time will be requested. However, changes in perception happen fairly quickly.

The hotel sector may well be one of the first to get impacted when things go sour, but it is also typically one of the first to enjoy the benefits of change in investor and/or consumer sentiment. A stable government in the centre would likely mean an improvement in medium to long term real GDP growth rates for India. While the next twelve to eighteen months will continue to see the last leg of supply pressure, India’s hotel sector will soon be welcoming it’s next up-cycle.

Sourced: traveldailynews