The Chennai hospitality market has a story to tell which is both intriguing and realistic. Currently, facing a demand supply imbalance, the market is predicted to correct itself in the coming years. By Reema Lokesh
Chennai has witnessed an evolution of sort. From a traditional and rather close set-up the change over the years has been quite vivid and contemporary. Investments in sectors viz automobiles, IT, etc, has brought in a new dimension to the city and has also changed its demographic set-up to some extent. Further, the expatriates brought in their preferences and globalisation did make an impact on the city’s. The new age Chennai as Kumar Sitaraman, chairman and CEO, Auromatrix Holdings describes it as ‘greater Chennai’ is predicted to witness action in the future especially the OMR and ECR belts.
Vikram Cotah, senior vice president, Radisson Blu Hotel GRT and Radisson Blu Templebay Resort, feels the potential is immense both in and round Chennai, which can be developed into a tourism hub for both business and leisure. A developing city always reflects a certain growth in infrastructure, which is visible in Chennai from airport to hospitality development. If one tracks the growth of the city, there has been a definite gush of hotel brands making their inroads over the last five years. From a small sized hospitality sector the development has been noticeable and noteworthy. Sitaraman, who has studied the market closely over the years describes the city as a flexible one which has a good industrial and IT base along with a vibrant trading community. It also has two seaports and a well connected airport which strengthens its infrastructure base further. Some feel that secondary demand areas like Egmore, OMR, ECR and Sriperumbudur will capture reasonable market share as compared to the city. Throwing light on the new areas of growth Vineet Verma, CEO, Brigade Hospitality Services feels that the location on the new developmental belts will also work as an influencer on the business. Certain catchments on the OMR and ECR belt may do better. The growth is a given along with rate stabilisation which is predicted for the future.
According to FHRAI’s fourteenth annual edition of the Indian Hotel Industry Survey, in cooperation with HVS Hospitality Services, Chennai also witnessed a steady increase in occupancy in 2010/11 and a marginal growth in average rate as well. The city saw a resurgence of demand from the IT sector as well as the automobile sector, which witnessed a record year-on-year volume growth of 26.0 per cent in total units produced due to revival in demand and easy availability of financing. City hotels, however, continue to cater to demand emanating from traditional sectors like banking and finance.
Going forward, as the city expands further, significant investments into hotels primarily in the budget and mid market segments in the Sriperumbudur and OMR areas is estimated to result in these areas converting to individual micro markets within Chennai. OMR is the IT corridor of the city and Sriperumbudur, Oragadam, is fast becoming an industrial hub with manufacturing and automotive sectors playing a key role. As these areas continue to witness additions of major companies, HVS expects hotels to benefit from increased demand from the commercial and extended stay segments. Additionally, new hotels that are planned with large meeting facilities are expected to increase demand for MICE as well. A total of 2,500 rooms are expected in the next three years in the upscale and luxury segments, adding to an existing base of approximately 2,000 rooms in the same segments. The large amount of supply entering the market is bound to put pressure on occupancy levels in the short to medium term, but the city-wide average rate is expected to witness growth due to the luxury and upscale products entering the market.
If one takes into account the current scenario, business has taken a beating with drop in rates prevailing across the board. Though the present scenario is witnessing a demand-supply mismatch, with supply being in excess as compared to demand, experts feel this is a transitional phase that will pan out and push up the occupancy and also ARRs to a pragmatic level in the next two to three years. The city may not witness the kind of unrealistic rates that Bengaluru commanded few years ago. Sharing his take on the market, Kamlesh Barot, director – VIE Hospitality, president – FHRAI and president – HRAWI says, “There is a rate correction of around 2.7 per cent from 2009-10 to 2010-11. Sentiments are not upbeat as of today but there will be a definite revival in the future. However, supply will need to get into a consolidation mode.” There are few who feel, the business might take longer to gain strength but it is definite. According to Manish Dayya, ex-GM, The Raintree, Annasalai, “2009-10, Chennai hotel market had 3,500 rooms and achieved 60 per cent occupancy with an average city ARR of Rs 6,300, followed by 2010-11 supply went up to 3,800 rooms and the occupancy saw a six per cent growth and ARR grew by Rs 100. Further 2011-12 saw an inventory of 4,000 rooms and the occupancy was stable at 66 per cent but ARR grew up to Rs 6,600. The next five years will see a growth in rooms up to 5,300 which will see a severe occupancy pressure due to the huge increase in supply but the same will definitely stabilise by 2017-18. It will be the rate of the day till the occupancy stabilises and will come handy to capture last minute travel booking incentives while the preferred rates will get diluted forcing a certain inclusions like internet and airport transfers which form a good miscellaneous part of income.”
Hence, the present demand-supply mismatch will continue for a while, the situation will undergo a transformation, bringing back business on track. Arun K Saraf, MD, Juniper Hotels and owner of the Hyatt Regency, Chennai, also expressed faith, he feels their decision to take over the real estate project was completely based on the market.
City Inventory Status
|Sr. No.||HOTEL||LOCATION||DISTANCE FROM||2007||2009||2010||2011||2012||2013|
|2.||TAJ COROMANDEL||NUNGAMBAKKAM||400 meters||213||213||213||213||213||213||213|
|3.||PARK SHERATON||ALWARPET||3.5 kms||283||283||283||283||283||283||283|
|4.||LE ROYAL MERIDIEN||GUINDY||10 kms||242||242||242||242||242||242||242|
|5.||TAJ CONNEMARA||MOUNT ROAD||1.5 kms||150||150||150||150||150||150||150|
|6.||CHOLA SHERATON||RK SALAI||500 meters||92||92||92||92||92||92||92|
|11.||TAJ MOUNT ROAD||MOUNT ROAD||1.5 km||–||220||220||220||220||220||220|
|16.||HYATT REGENCY||TEYNAMPET||1.5 kms||–||–||–||–||330||330||330|
|17.||ASIANA – ASCENDAS||OMR||12 kms||–||–||–||–||57||57||57|
|18.||SOMERSET ASCOTT||SANTHOME||8 kms||–||–||–||–||67||80||187|
|20.||RADISSON BLU||EGMORE||2 kms||–||–||–||–||–||160||160|
|21.||GRAND CHOLA||GUINDY||9 kms||–||–||–||–||–||350||650|
|22.||PARK HYATT||GUINDY||9 kms||–||–||–||–||–||202||202|
|23.||THE LEELA||SANTHOME||8 kms||–||–||–||–||–||329||329|
|24.||ROYAL ORCHID||R K SALAI||800 meters||–||–||–||–||–||130||130|
|25.||RAJ PARK – GUINDY||GUINDY||10 kms||–||–||–||–||–||200||200|
|27.||SRM – GUINDY||GUINDY||9 kms||–||–||–||–||–||30||200|
|28.||TAJ GATEWAY||OMR||16 kms||–||–||–||–||–||50||150|
|GROWTH% YEAR ON YEAR||–||12%||6%||16%||30%||48%||22%|
If one tracks down the hotel categories that are scheduled to open doors, there is a visible bend towards the upper scale and luxury hotels opening doors as compared to the mid market segment. Dayya shares some statistics on the same, with Park Hyatt – 200 rooms, Holiday Inn – 275 rooms, Taj Gateway – 160 rooms, ITC Grand Chola – 600 rooms, Leela with 300 rooms, West In – 250 rooms, Ramada – 100 rooms, Park Plaza – 140 rooms, JW Marriott – 370 rooms, Somerset Service Residencies – 130 apartments. He feels the average investment per room should be from Rs 85 lakhs to one crore as mostly all upcoming hotels are in the luxury segment.
Sitaraman is of the opinion that there is definitely a deficit in the middle level mid-scale sector, whereas there is a need for this slot in the future. The ITC Grand Chola which is waiting in the wings to open its doors officially may result in some interesting market behaviour. With its mega convention facility offering, the property is focused to tap the MICE market in a large way. According to Akshay Kulkarni, regional director, South & South East Asia, Cushman & Wakefield Hospitality, feels that the inventory size will lead to some interesting outcomes and strategies. But markets have thrown in surprises in the past and one needs to wait and watch how the markets react to these future inventories. He also expressed his view that there is a need to build the city and its surrounding as a tourism product. Barot is also of the opinion that needs to build its image as a tourism destination. Chennai is not marketed as tourism destination in the international circuit. Tourism products from entertainment to nightlife needs to improve to retain the traveller in the city.
One of the major bone of contention that hoteliers in Tamil Nadu are facing is that of luxury tax being charged on printed tariff than on actuals. Most hoteliers have expressed their grievance on this issue and have been appealing to the government from time to time but to no avail. Lemuel Herbert, associate VP and area GM, The Park Chennai, is of the opinion that this form of taxation is rather unfortunate and needs a correction. Dayya also feels that the government should be reworking on the subject. “The current taxation norms, property taxes, etc, are quite high and this definitely is seen as a big block in growth and development and further restricting good investments coming into the city not only in hotels but also in restaurants and other hospitality developments. There is a tremendous scope for leisure segment to grow which is not visible in the state development plans. The license costs, power shut down hours, VAT on imported liquor, are some of the long time burning issues, that needs to be addressed,” said Dayya.
In fact hotels are using innovative methods and packages to attract clientele and increase room nights and repeat customers. Roop Chadda, director-operations, The Residency Towers, Chennai says, “We are happy in our space and get our share of business but we provide our clients facilities and services which are convenient and in demand. We offer 24 hours check-in, check-out facilities, day rate room tariffs from morning 8 am to 8 pm to meet the needs of our business travellers.” He adds that, the hotel caters to long staying guests and provide them with service that can help retain our clients. Ajai Kacker, vice-president-hotels & resorts MGM entertainment is also of the opinion that it is crucial to offer the client an experience that converts into regular business to meet and tide over other external challenges such as taxation issues and government regulations which are not favourable to the hospitality sector.
In a recent development, the Tamil Nadu government has provided a major relief to the hospitality sector in the region by easing out the liquor and bar license rule that was applied to three-star category hotels and above and also to the clubs in the region. The initial rule which allowed liquor bars to operate only till 11 pm in the sector have been granted further extension through a two pronged strategy. Bars can operate 24 hours by paying a premium on the existing rate or one has the option of paying an additional amount to receive an extension for an hour ie from 11 pm till midnight. This new rule has been well accepted by the hospitality sector and is only hoping to receive more benefits from the government.
It will be interesting to watch the Chennai market in the coming years and all to witnesses all the predictions of today either in practice or not. Perkin Rocha, GM, Raintree Annasalai, Chennai, expresses huge faith in the market wherein he feels this market cannot go wrong. Rocha adds, “The mandatory rate revision in October will increase the rate marginally and the FDI in retail and aviation will definite affect this region just like any other in India. Further, Chennai receives around 56 per cent of the expatriate population that visit the country highest as compared to any metropolitan. There are 160 Japanese companies in Chennai presently which are pitched to go up 1,500 companies in the coming three years. Hence, there is a positive trend.”
The conclusion is that though the current scene is not as robust, the future is that of revival and growth which will be realistic and consistent.