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Economic factors notwithstanding, Mumbai’s performance in the last year shows it is the right city for developers to set up new hotels and expand their portfolio, says Manav Thadani
Mumbai, as India’s commercial capital has always been a fascinating city. Its home to not only some of India’s richest businessmen, but also the millions of slum dwellers based on which the latest blockbuster ‘Slumdog Millionaire’ was made.
Considering the city’s population of 16 million, a room count of only 8,500 branded rooms is abysmally small and reflects the tremendous opportunities the city offers to potential hotel investors. Historically, the branded hotels’ performance has been quite good. Table 1 below, presents the historical data for the past ten years and also includes the recently concluded fiscal year. Interestingly, inspite of the global recession and the terrible terror attacks of 26/11, Mumbai still managed to have its third best year of performance in the past decade.
HVS continues to remain extremely bullish on the Mumbai market and it’s for good reasons. Last year in August, when we had looked at the Mumbai market we had expected it to grow by more than 125% in terms of new hotel room supply and in fact we had anticipated that at least 6,580 new rooms (under active development) would enter this market.
However, post the current downturn due to the global recession and the unexpected terror attacks on Mumbai hotels this new supply pipeline has dropped to a growth of only 88% or 4,910 rooms (under active development) as per HVS estimates for the next five years. Active development is those properties which are actually under construction or HVS is 100% sure of their development. Table 2 reflects these numbers clearly.
It is also interesting to see that the percentage of new room supply in the luxury and first class categories have declined in the past six to seven months, which is good indication. Mumbai certainly needs many more budget and mid-market hotels rather than luxury ones.
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In addition to the above, the two hotels that were directly impacted due to the terror attacks on Mumbai are likely to re-enter the Mumbai market and further increase the supply by 624 rooms. One would imagine that with the above room count increase Mumbai may be in for some sharp correction.
However it is HVS’ view that Mumbai is too strong a market and even though there will be a continued correction in the market in the short term, we believe that by 2011 onwards the city is likely to see demand pressure once again and we will be back to square one with a demand-supply imbalance which would force rates and occupancy to go up.
It is our firm belief that a megacity like Mumbai can comfortably absorb at least 700–800 new rooms per year for many years to come. The city is rapidly growing; the expansion of the existing airport and talks of a new convention centre are all indicators of a robust future. The relaxation of development norms and FSI has assisted in marginal rationalisation of land prices.
We are aware of large scale real estate mixed-use projects (including hotels) being planned as part of the existing infrastructure at the airports and others, providing an opportunity for hoteliers to find favour with India’s first hotel city, Mumbai, and establish their own footprint here. Their chance of entering this elusive city might finally be close at hand.
HVS is a fully integrated global consulting and services firm focused exclusively on the hospitality industry. For more information, please contact Manav Thadani, MD on mthadani@hvs.com or visit www.hvs.com.
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