From small fishing village to mega industrial hub

Comment, Hospitality Trends

With tremendous investments and development lined around, the Tier 2 city of Vizag is expected to transform into the industrial metropolis of the eastern coast of India.

The ‘Jewel of the East’ or ‘The city of destiny’, Vizag is built along the seashore of the Bay of Bengal and it is bounded and broken by the bold headland called the ‘Dolphin’s Nose’.

The city is nestled among the hills of the eastern Ghats and is home to the eastern naval command of the Indian Navy. Vizag is a major national port and the second largest city in the state of Andhra Pradesh with a population of approximately 1.3 million.

It is also home to several state-owned heavy industries; one of the most advanced steel plants and has one of the country’s largest ports and its oldest shipyard. It has the only natural harbour on the eastern coast of India.

From a small fishing village, the city has developed and grown into a mega industrial hub. The key economic drivers for the city include port related activity, defence, petrochemicals, mining, manufacturing and commercial activity from multiple industries.

Various factors contributed to the city’s growth economically, prominently the natural harbour and the developed railways, which metamorphosed the village into a burgeoning industrial city. Vizag has recently expanded into Greater Vishaka, incorporating Gajuwaka and Madhurawada into the city limits.

Vizag is one of the major cities on the eastern coast of India connected by National Highway (NH) 5, a major national highway and a part of the Golden Quadrilateral system of Indian highways connecting Chennai and Kolkata.

The state as well the city governance have made concerted efforts to make Vizag the second economic development hub in the areas of information technology enabled services, pharma and biotechnology, development of consumer goods, ancillary industries and tourism after Hyderabad.

Significant efforts in this direction include some of the recent projects supported by the corporation, which include upgradation of the city airport, setting up of Vizag Special Economic Zone, Simhadri Power Plant, Pharma City at Parawada, Gangavaram Port, Gems and Jewellery Park and Apparel Export Park amongst other projects.

The city throws open immense possibility of many more manufacturing units being set up in the proximity to the city.

Vizag has become a hot bed for many home grown small and medium enterprises (SMEs) in the IT/ITeS sector with companies such as Prospecta Technologies, Symbiosys Technologies, Xinthe Technologies, NuNet Technologies, Jain Infotech, Sankhya Technologies, Gurooh Info Online (GIO), Manuh Solutions, Patra, Acclaris, and Samudra Software, which have formed an association called Vizag Information Technology Association (VITA) to help promote IT in Vizag as well as bridge the industry-institution gap.

Hospitality Orientation
The hospitality scene in the city is largely concentrated with mid market and the budget segment hotels, however these hotels constitute lower inventories, whereas amongst the upscale hotels in the organised category form about 255 rooms out of the total inventory of 1185 rooms in 2011.

The demand in the city is essentially driven by business travellers, which constitutes 80% of the entire demand. Long-stay contributes 5%. The business and long-stay demand is driven by the strong presence of pharmaceutical, BFSI, chemical and petrochemical companies.

The MICE segment contributes a healthy 6.9%. Due to the stronghold of the pharmaceutical region in the city, various medical conferences are hosted by the city. Leisure and weddings also contribute a significant 8.6%.

However, given the rapid growth in the services sector, apart from the primary and secondary business in the city, the hospitality sector is witnessing the commencement of operations by various brands.

Quality Inn Bez Krishna is one of the new entrants and has recently entered the market with 47 keys, Four Points by Sheraton would be amongst the first to start operations by 1st March 2011, while the Novotel, Sheraton and various others are likely to become operational over the next two to three years.

The Novotel is expected to start operations by end of this year and will also offer a large convention space in order to meet the growing conference market of the city driven by industrial and commercial growth.

Demand Drivers
The demand for hospitality in the city is essentially business in nature, constituting approximately 60% of the entire demand. Leisure contributes to a sizable 27.5% of the entire demand.

The MICE segment contributes a healthy 13%. Due to the stronghold of the SEZs, the largest port in India, the city is driven by the SEZ performance.

However the leisure segment in the city holds potential due to the unique terrain of the city with the presence of beaches and cliffs, wildlife sanctuary, a submarine museum, hill stations viz Araku Valley, limestone caves, mountain ranges and a famous attraction – the Dolphin’s Nose.

The city also holds religious importance due to the presence of Simhachalam, which is a hill shrine of Lord Narasimha approximately 16 km north of the city.

Vizag is surrounded by Buddhist sites, which are also major tourist attractions in the city besides provided increasing interest for archaeologists in this area. The city also has the Ramanaidu Film Studios, which started operations recently.

The city has developed into a hub for many heavy industries. The Vizag Port, the largest in the country, is the ideal gateway contributing to the development of petroleum, steel and fertilizer industries.

The Vizag Steel Plant and the Hindustan Petroleum Corporation Ltd. were the two multi-billion dollar investments that put Vizag on the country’s industrial map. The city also has two National Thermal Power Corporation (NTPC) power plants to cater to the huge power needs of the industries.

Vizag also houses the headquarters of the Dredging Corporation of India. Vizag is the hub for iron ore and other mineral exports of India. It is also one of India’s main fishing ports, has a dedicated harbor for the fishing industry and handles a large percentage of India’s seafood exports.

Rushikonda IT Park is set up in more than 100 acres of land on three hills on the north eastern part of the city. ICICI, Sutherland and other mid-sized IT companies have set up their centres in the area.

Gangavaram Port has been developed as an all weather, multipurpose, deepest port in India with a depth of up to 21 metres capable of handling Super Cape size vessels.

Connectivity with railways on the network of ‘Chennai-Vizag-Howrah’ rail corridor has added to the attractiveness of the port. All the above scenarios are keen on providing slated growth to the city.

Tourism is one of the emerging industries in the city in terms of attracting national and international tourists and bringing in foreign currency as well.

The sector also contributes to the increasing employment opportunities. Marketing of local products, hospitality and transport services are some of the areas of employment generation in connection with tourism.

Occupancy Rates &ARR’s
The trend in the hospitality market between 2008 and 2010 is shown to have declined from 66% in 2008 to 64% in 2009 and one can again see a rise to 67% in 2010. Due to undemonstrative demand, there has been marginal change in market wide ARR, from approximately INR 4,193 in 2008 to approximately INR 4,395 by 2010.

Our fieldwork indicates that a large number of hotels will experience a weakening of ARRs as a result of the introduction of newer inventory in the next 2 years due to the upcoming supply with respect to the Novotel, Four Points by Sheraton and the Sheraton Seaview Resort, all opening by year end 2012.

It has been indicated that this trend is a combination of a slowdown in construction in the upcoming developments with respect to commercial and hospitality and in the sluggish three quarters of 2009 compounded by new rooms supply entering the market.

Vizag is a good example of a Tier 2 city in India that is seen as a location ready for a sustained development activity. With the investments and development lined around, Vizag is expected to transform into the industrial metropolis of the eastern coast of India.

Hence it is present on the development radar of almost all major hotel chains in India. Vizag is a part of the PCPIR [Petroleum and Chemical, and Petrochemical Investment region] proposed between Vizag and Kakinada. This PCPIR region is expected to generate employment of 1.2 million and projected investment of 34-30,000 million.

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