INDIA'S sluggish economy and freefalling currency have cast a pall over the country's hospitality sector as average occupancy rates (AOR) and average room rates (ARR) plummet.
With the Indian rupee crashing by 11.6 per cent year-on-year last month, the Federation of Hotel and Restaurant Associations of India confirmed in its independent study that AOR for 1Q2013 has hit a decade-low of 58.3 per cent.
In the meantime, ARR for the same quarter across major cities in India chalked up a paltry Rs6,214 (US$105), the lowest since 2007.
Carlson Rezidor Hotel Group South Asia chairman, KB Kachru, said: “The premium hotel segment has seen a downward trend in occupancy during the last financial year. Occupancy rates in five-star hotels in big cities have gone down by about 15 per cent as compared to last year.”
CRISIL Research expects profitability of five-star hotels to dip to 16 per cent in 2013-14 due to rising costs and a decline in occupancy.
The lacklustre state of the Indian economy has led underperforming hotels to seek avenues for shedding dead weight, with HVS reporting that 75 branded hotels have been up for sale since the beginning of this year.
Real estate giants DLF and Emaar-MGF have also stopped building new hotels and have been selling off their proposed prime hotel land plots since1Q2013.
The Indian rupee has been declining steadily by almost 12 per cent year-on-year. This, along with perpetually slow economic growth, high land prices and shrinking inbound numbers from prime source markets such as Europe, led to Royal Orchid Hotels selling its Ahmedabad property to Samhi hotels, and Ista Hotels selling a stake to a foreign investor and rebranding five of its hotels as Hyatt properties to tap the latter’s global reservation network last year.
According to industry sources, some of the hotels that remain in the market include Best Western Taurus, Delhi; Shangri-La Hotel, Mumbai; Hilton Mumbai International Airport; Novotel Hyderabad Airport; Hilton Garden Inn, New Delhi and Hyatt Regency, Pune.
New Delhi-based Omega Hospitality Consultants managing director, Rakesh Lamba, said: “The new hotel development market is downbeat as RevPAR and occupancy levels are down while construction costs are high. The cost of real estate in prime locations is disproportionately high so major investment in high-end branded properties is very slow at this time. We expect a recovery if the rupee stabilises and business travel picks up.”