Bengaluru: unbeatable still
From pensioner’s paradise to India’s Silicon Valley, Bengaluru has witnessed major and rapid development, which, in turn, has led to an ever-growing keys inventory.
Bengaluru has seen higher economic growth – than the national average of eight per cent – in the last few years, but has faced significant constraints in expanding infrastructure, which has not been able to keep pace with the rate at which the city is growing.
The main travel traffic profile comprises of business visitors (80%) rather than leisure travellers; 51% of foreign business travellers coming into India visit here, compared to 35% for Mumbai and 26% for New Delhi.
The Leisure (three per cent) and MICE (five per cent) segments have not been explored to their true potential owing to the lack of sufficiently large meeting facilities (compared to New Delhi or Hyderabad) and historically high room rates – which have not provided a viable option for PCOs (Professional Conference Organisers) or tour operators.
Bengaluru’s hotel market’s historical performance of unbeatable average occupancies and rates facilitated considerable growth in the number of international brands entering the market, as well as the inventory across all hotel asset classes.
The city experienced a growth in inventory of over 900 rooms in the last two years, with over 10,000 rooms anticipated to enter the market over the next four-to-five years.
We note that a sizeable amount of room inventory proposed is not likely to enter the market immediately due to a number of factors including decreasing demand, tougher compliance for funding, recessionary state of the market, and perceived oversupply of hotel rooms.
Trident, with 225-rooms, will be the first hotel to become operational in north Bengaluru after the relocation of the airport to Devanahalli.
Although the area around the airport is expected to witness increased commercial activity, we understand from our interactions with local developers that clearances are yet to be awarded.
However, the growing room inventory coupled by diminished quantum of demand is likely to result in a greater competitive environment. It is also likely that demand from the un-organised sector may climb up to the organised sector, as companies realise the value proposition that the branded hotels are likely to provide guests.
The city achieved average occupancies (67-70% ) and rates between Rs9,200 and Rs9,800 in 2006 and 2007 respectively. The global economic slowdown impacted average occupancies and rates with a marked consolidation of approximately three occupancy points and a decline of approximately 15% in average room rates in 2008.
While we anticipate demand to pick up by the end of 2010, the market-wide occupancy is likely to be impacted as a result of the quantum of room inventory to enter the market.
It is possible that value-for-money and rate positioning is going to become a key driver for hotel bookings over the next five years.
The market wide ARRs are expected to decline by five-to-ten per cent over the next two years owing to the quantum of room supply anticipated; this drop is however, cushioned by the proportion of upscale and luxury hotels expected during this timeframe.
The demand that witnessed a decline due to the recessionary trends is expected to resurface by 2010 year-end, though this will largely be met by the upcoming supply and hence is likely to result in minimal occupancy level growth.