Underperformance of domestic hotels, funds crunch among builders and an uncertain investment environment have together slowed down construction activity in India’s hospitality sector, according to real estate consultancy Cushman and Wakefield.
Adding to the sector’s woes is the depreciation in the rupee, which has pushed up the cost of developing hotels by 20%-30%, Cushman and Wakefield said in its report titled ‘Decoding Realty (Hospitality) in 2013’. The challenges facing the industry are likely to continue this calendar year, the report suggests.
The basic cost of importing materials and machines have gone up and there is limited availability of capital,” said Akshay Kulkarni, regional director of hospitality, south and Southeast Asia at Cushman and Wakefield. “The cost of development of new hotels has risen by 20%-30%.”
According to the report, the top eight urban centres—national capital region (NCR), Mumbai, Pune, Ahmedabad, Chennai, Bangalore, Hyderabad and Kolkata—remain attractive to most hospitality stakeholders but are becoming increasingly expensive for new projects.
“Developers and hotel companies are seeking opportunities through conversions rather than greenfield developments, as it becomes easier and faster to establish a hotel and expand their footprint,” it said. Economic uncertainty and rising supply, too, have affected hotel occupancy, which dropped to 58% in 2012 from 63% in 2011. “2013 too hasn’t seen any improvement, as new supply has hit the market and business travel has seen a drop due to cost-cutting measures by corporates,” Kulkarni said. “NCR may see major dip in occupancy as it already has huge existing inventory and strong future supply.”
Kulkarni, however, said he expects improvement in the overall sentiment post the general elections next year.
Resourced from The Economic Times