News & Updates

Hotel industry to be constrained in near term: study

Business Standard

With around 3,620 new hotel rooms in the branded segment expected to be operational over the next three years, the hospitality industry in Chennai is expected to be constrained in the near term, though the adverse impact is expected to be short-lived, according to a study from real estate services firm Jones Lang Lasalle, India (JLL).

Chennai, at present, has 29 branded hotels with 4,656 rooms across different categories. According to the Hotel Intelligence Report from Jones Lang LaSalle Hotels, India, released in April, 2012, around 17 hotels with an inventory of 3,620 rooms in the branded segment are under construction. Besides, an inventory of almost 2,500 rooms are presently in their various stages of planning and are expected to be operational in the next 5-7 years.

 “In the near term, we expect marketwide average rates and occupancy levels to remain constrained as new supplies open up in 2012 and 2013, with a high proportion of new rooms in the luxury and upper upscale segments,” says the study. “However, the adverse impact is expected to be short-lived with significant commercial and industrial developments being planned across the city,” it added.

Of the upcoming new rooms, almost 35 per cent of the rooms in Chennai are expected in the luxury segment while 25 per cent of the upcoming supply would be in the midscale and economy segment. Serviced apartment and upscale segments would contribute around 4 per cent and 3 per cent respectively.

The occupancy levels, which increased to 68 per cent in 2010-11 compared to 64 per cent in 2008-09 has been in a decline during the first three months of 2012. For the year-to-date 2012, according to the report published in April 2012, the occupancy levels registered a decline of 300 basis points to reach 65 per cent, owing to the increase in the supply.

The average daily rate (ADR) for rooms remained stable during the period, around Rs 6,100. The ADR saw a decline in 2010-11 when the occupancy levels grew to Rs 6,100, almost 12 per cent down from the Rs 7,000 ADR in 2008-09.

The revenue per available room (RevPAR) in Chennai reached Rs 4,400 in 2008-09, and later started declining as the demand conditions softened and new supply entered market. “However, with a continuous addition of branded supply, the market has witnessed a decline in average rates. Because of this, there has been an 11 per cent decline in RevPAR since 2008-09,” says the report.

The report also states that the lodging demand in Chennai is dominated by the business segment, contributing 70-75 per cent of the total demand, while meetings, incentives, conferences and exhibitions (MICE) occupy 10-15 per cent and leisure 5-10 per cent of the demand.