Mandeep S Lamba, President (South Asia), HVS Anarock, shares investment opportunities for Indian hotel sector
The year 2021 has been a mixture of challenges, learning and success for the Indian hotel sector. While the year started off on a good note, thanks to the boom in domestic leisure travel spurred by a steady decline in active cases and the start of the country’s immunization program, the recovery was quickly hampered by further news. restrictions and lockdowns imposed in response to the country’s second wave. Although Covid-19 caught us off guard the first time around, the industry has been more proactive this time around, dealing with obstacles and building on lessons learned the previous year. At the height of the second wave, some hotels, mostly in shopping malls, partnered with hospitals to provide isolation and quarantine facilities to improve occupancy. Once the demand started to increase, hoteliers thought about the idea of creating various weekend, stay, vacation, wellness and dining packages to appeal to a variety of customer segments. Some have even introduced pet-friendly policies to attract pet parents.
As a result, India’s hotel industry has regained ground faster than expected, with occupancy approaching 60% in October 2021, bolstering the industry’s hopes for a stronger rebound. Growth in domestic leisure travel, strong pent-up demand and the resumption of domestic business travel are all contributing to a strong recovery. Weddings and social events are also driving demand in some markets. This positive travel feeling, boosted by lower restrictions in states, fewer cases of Covid-19 and a higher vaccination rate in the country, is expected to continue into the remaining part of the year that has historically been the best. months due to the start of the holiday season. In addition, after a hiatus of almost two years, small to medium-sized national MICE events are making a comeback, fueling demand for hotels. We expect the sector to close the year with nationwide occupancy of 46-49%, up 11-14 percentage points from 2020. Meanwhile, RevPAR is expected to reach 2,000-2,300 Rupees, helping total industry revenues to reach 50 to 55 percent of pre-Covid-19 levels.
Performance of the Indian hotel sector in 2021
We expect strong demand to shift the fortunes of the industry, bringing the industry’s performance for the October to December 2021 quarter closer to pre-pandemic levels, with a few markets, such as Goa and Chandigarh, even surpassing pre-pandemic performance for the quarter.
Hoteliers also continued with their expansion plans, signing smaller properties with more emphasis on Tier 3 and Tier 4 towns, which resulted in an increase in brand openings and signings by properties across the country. during the first nine months of 2021 compared to last year.
Hotel occupancy, which was hit hard due to travel restrictions linked to Covid-19 in 2020, has seen a strong recovery since the third quarter of 2021. Growth in domestic leisure travel, strong pent-up demand, resumption of travel in the country, wedding and social events are all contributing to this recovery. Small to medium-sized national MICE events are also making a comeback, fueling demand for hotels.
Average rates, which had struggled as hotels tried to increase occupancy rates, began to improve in all markets over the past two months.
2022 and beyond: future investment opportunities
Some benefits of the turmoil caused by the pandemic are that India’s hospitality industry has learned to adapt quickly, think outside the box and embrace new ideas faster than ever. As the sector continues to rebound in 2022 and beyond, here are investment opportunities that are expected to accelerate.
After a wait of almost two decades, we expect the occupancy rate to reach 70% in 2024.
Explore the under-penetrated leisure segment: The bulk of hotel development in India over the past decade has focused on key business destinations, as business travelers and business travelers accounted for a significant portion of hotel demand. In addition, due to the lack of infrastructure and the seasonality of leisure travel, hoteliers have found this category less profitable. However, thanks to domestic leisure tourism coming to the rescue of the sector in the post-Covid-19 era, hoteliers have once again realized that leisure travel is rebounding faster than business travel during the period. crisis. In addition, compared to business travelers, leisure travelers tend to stay longer and use more services at the hotel. Average hotel rates in leisure destinations are also likely to be higher than those in business hotels, making investment more attractive.
In addition, the government has announced significant investments to improve the country’s road and rail network, as well as plans for the privatization of airports in level 2 and level 3 cities, which will help improve regional connectivity and the latter. kilometer to hitherto unexplored and underserved Indian tourist destinations. . For example, the number of operational airports increased from 50 in 2000 to 153 in 2020, with plans for another 100 by 2024. The government also plans to develop an additional 8,500 km of national highway, which will facilitate traffic. car trips in the future. As a result, national leisure tourism is receiving the attention it deserves, with hotel companies renewing their focus on increasing their presence in leisure destinations. This segment, however, continues to be underserved as there are several emerging tourist spots in India where travelers still struggle to find good quality branded accommodation. As last mile connectivity to previously unexplored tourist destinations improves, hoteliers now have the opportunity to further exploit this underserved segment.
Unlock ancillary revenue streams: The hotel sector has lagged behind other travel-related industries when it comes to unlocking ancillary revenue streams by traditionally focusing on additional services such as restaurants and spas. However, as room revenues became negligible during the pandemic, the hotel industry was forced to find innovative ways to use its assets, opening up ancillary revenue streams including food delivery, laundry services, DIY meals to name a few. Having understood the true potential of ancillary income to increase revenue, hoteliers should now take advantage of the vast untapped opportunity by using existing infrastructure for new business opportunities. This could include the creation of a space dedicated to co-working spaces, the monetization of parking spaces, the deployment of charging stations for electric vehicles, the rental of kitchens for the needs of the cloud kitchen during off-peak hours. and other similar optimizations of space and services. This strategy will improve customer engagement and brand loyalty, while increasing real estate revenue per square foot.
Partnership with branded restaurants: Hoteliers should reinvent F&B by leasing space to reputable, stand-alone restaurant brands on a revenue-sharing model that can be mutually beneficial. Restaurants can benefit from the hotel’s captivated clientele, the advantages of location and branding, while hotels have the opportunity to enhance the customer experience by becoming a “destination” for customers. of the hotel and the inhabitants, which leads to an increase in income and profitability of the catering industry.
Evaluate Hotel Brand Residences: Branded Residences, still a niche concept in India, are another opportunity that hospitality players should seriously consider in the post-Covid-19 era to diversify their risks and sources of income. By leveraging its brand through affiliation, the hotel operator can not only collect royalties / license fees, but diversify its revenue streams by providing end-to-end property management and a full range of services. such as janitorial, housekeeping, laundry, housekeeping and catering services. This is a lucrative model, as hotel operators can leverage their brand equity for high-end housing projects and earn not only license fees and services provided, but also the commission charged on the sale of each house.
Leveraging the popularity of alternative accommodations: Traveler preferences have changed dramatically since the start of the pandemic, leading to a growing preference for vacation home rentals and homestays as alternatives to hotels and resorts among many domestic travelers. These segments offer travelers the best of both worlds: the privacy, security, flexibility and convenience of private accommodation combined with the pleasures and comforts of a hotel, especially for those traveling in small groups or with families and pets. of company. Although no formal statistics are available, our estimates suggest that the occupancy rate of the vacation rental business has increased 40-50% from the pre-pandemic average. However, these segments are still very poorly organized with the presence of few branded hotel players, especially in the luxury segment. As a result, new players are likely to enter these segments with lucrative investment models, especially for expansion into underserved leisure destinations, due to lower overheads and higher profitability than that. of a hotel. IHCL, for example, launched the amã Stays & Trails brand to enter the country’s rapidly growing homestay market. Likewise, the major international hotel companies have already diversified into the vacation rental space on a global scale and it is only a matter of time before they do so in India as well.
The remarkable recovery of the Indian hotel sector in recent months has been encouraging, but there are growing concerns that the new variant, Omicron, could cause a difficult start for the global travel and hospitality sectors until 2022. Therefore, it is essential that hoteliers persist in adapting and innovating and taking advantage of the opportunities available to them, as the waves of Covid-19 continue to rock the recovery boat.