Room to spare

Chennai is many things to many people but a happening address for posh hotels it was not, at least not till a couple of years ago. Now it appears that every hotel major wants a slice of the city’s upbeat hospitality sector (See: It’s raining hotels). The figures are startling: the number of premium rooms has gone up from 1,800 in FY07 to 3,021, a jump of nearly 65% in less than four years. Another 522 rooms will be added once ITC’s Grand Chola opens next month. By FY15, the number of premium rooms in the city would have risen to about 5,010, or 180%, if all the projects coming up meet their deadlines. 

 “It’s likely to lead to an oversupply situation, until this incremental supply is absorbed,” says Pavethra Ponniah, analyst, Icra. “It’s also likely to put pressure on ARRs (average room rates).” But, as a developing market with multiple feeder businesses in the manufacturing and servicing sectors, Ponniah feels the city has the potential over the longer term to absorb the glut. In the short to medium term, the Chennai conference and exhibition market is enjoying higher conference traffic, diverted from Hyderabad due to the Telangana-related unrest in the Andhra metro. The southern metro has recovered faster from the slowdown than other Indian cities, due to its proximity to the auto industry and the revival in the IT/ITeS sector. 

The India State Ranking Survey 2011 by global hospitality consultancy HVS says Tamil Nadu and Karnataka have an ideal market for hotels based on state expenditure on tourism and the necessary infrastructure to support tourist arrivals. At 68.2%, Chennai’s occupancy rate is better than that of Delhi (66.7%) and Mumbai (62.5%). Sunjae Sharma, general manager, Hyatt Regency, which opened in August last year and will remain the biggest luxury hotel in Chennai till ITC’s Grand Chola launches next month, strikes an optimistic note, “The city has a buoyant industrial sector and the addition of global hospitality players will fuel supply and push demand further.” That will take quite some time. In the meantime, customers have a reason to cheer. The incremental supply in rooms is likely to improve the value for money proposition in the hotel industry in Chennai — if demand is high and there aren’t enough rooms to go around, rates skyrocket without infrastructure to match. That’s no reason for hotels to cheer though.