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HVS Anarock releases ‘Indian Hospitality Industry Overview 2020’

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In the aftermath of the COVID-19 pandemic, brand signings by keys witnessed a year-on-year decline of 40 per cent in 2020. Furthermore, the report states that during the year, 100 new hotels entered the branded hotels market, while an additional 35 hotels were rebranded.

HVS ANAROCK releases ‘Indian Hospitality Industry Overview 2020.’ The report showcases key findings for the hospitality sector. The report reveals that in the aftermath of the ongoing pandemic, brand signings by keys witnessed a year-on-year decline of 40 per cent in 2020.

According to the report, midscale hotels remain the market leader with respect to the number of properties signed in 2020. The upscale hotels have also increased their market share substantially from the previous years. In terms of keys, midscale segment is the most preferred segment in the country, accounting for 41 per cent of the total signings by keys in 2020, followed by upscale (37 per cent of total signings), economy (11 per cent of total signings) and luxury (11 per cent of total signings).

Though commercial destinations continued to witness the majority of signings (49 per cent of total signings by keys), leisure destinations have also picked up pace in 2020 as hotel companies renewed their focus on increasing footprint at leisure destinations in the post-COVID era. As a result, 41 per cent of the total hotel signings by keys in 2020 were in leisure destinations in the country.

The year saw the entrance of 100 new hotels in the branded hotels market, while an additional 35 hotels were rebranded. Management contracts continued to be the preferred form of brand signings, however, franchising is steadily strengthening its position. Moreover, hotel operators preferred to sign projects that are less risky and have a higher chance of completion compared to greenfield projects. As a result, brownfield projects grabbed the pole position in 2020. Tier 3 & Tier 4 cities continued to show aggressive growth as brands tried to spread their distribution based on steadily improving demand from these cities.

The report further states that the total air passenger traffic in India reached record lows in the aftermath of the pandemic as flying across the country was ceased. Domestic flights resumed in India from 25th May 2020 after a gap of two months. However, all scheduled international commercial flights remained suspended since March 2020, with only the flights under air bubble agreements with various countries being operational.

The ‘Vande Bharat Mission’ was launched in May 2020 to evacuate Indians stranded abroad after the COVID-19  breakout; as of 5th January 2021, over 4.49 million people had availed this service.

2020 Quarterly Highlights

Q1: All major hotel markets recorded the highest-ever business-on-books for February. However, the euphoria started to fade when corporates started to cancel bookings as early as end of January, which reflected in the market performance as it recorded a RevPAR close to ₹3,700 in Q1, around 19 per cent lower than last year.

Q2: The quarter was marred with lockdown, travel restrictions and uncertainty. Demand was limited to stranded travelers and mandatory institutional quarantine business. As a result, the country recorded only 15 per cent -16 per cent occupancy at below ₹3,500 rate.

Q3: Early signs of revival were visible in the market as the lockdown restrictions started to ease. This revival was primarily due to people traveling to motorable leisure destinations. In the absence of corporate demand and government restrictions on event size, the revival in the conventionally corporate-heavy markets was assisted by social events.

Q4: The onset of the festive & holiday season in the last quarter of the year brought some much-needed cheer as people flocked to leisure destinations. This was complimented by easing of government regulations on event sizes and the availability of a larger number of auspicious wedding dates as per the Hindu Calendar. The sector focused on social events and other indirect room demand generators such as staycations and stayevents. This enabled the industry to achieve occupancy level closer to 35 per cent and ADR north of ₹4,000 during the quarter.

Hotel markets in business destinations, especially those focused on IT-ITeS such as Bengaluru and Pune, suffered the most as corporate travel and MICE# came to a halt. The ‘staycation’ packages, however, helped in shoring up the occupancy at some city hotels.

Goa maintained its position as the leading leisure destination and this year too it has lived up to its reputation as the country’s most resilient market. Meanwhile, the revival of domestic leisure travel during the latter part of the year helped improve the occupancy in leisure hotel markets, especially the motorable leisure destinations in the country. Chandigarh was the second least affected market.

The total value of hotel transactions in India reached ₹24.6 Bn in 2020 compared to ₹49.4 Bn in 2019, higher than the previous peak of ₹20 Bn in 2015, showing the resilience of the sector even during the crisis.

Performance of Key Hotel Stocks 

Oberoi Realty’s acquisition of 50 per cent stake in the upcoming Ritz Carlton hotel in Worli, Mumbai This single megadeal accounted for over 40 per cent of the total M&A spend in the Indian hotels sector in 2020.

Vision 2021

HVS Anarock anticipates Occupancy & ADR to reach pre-COVID levels by 2022 & 2023, respectively. Brand Signings 2021 estimated at 250 hotels with 21,000 keys. Scheduled Openings in 2021 estimated at 60 hotels with 6,000 keys.

Corporate travel will be diminished permanently. Remote working and virtual meetings are the norm today. During the last one year, companies have realized that not all meetings have to be face-to-face meetings, several of them can be conducted virtually and be as effective, while helping them save costs. Corporate travel will rebound but remain permanently reduced compared to pre-pandemic levels as most organizations are likely to embrace a hybrid work environment going forward.

Hotel companies have once again renewed their focus on increasing their network at leisure destinations. Besides, hotel rebranding or conversion has been a growing trend in the Indian hotels sector over the last few years. As a result, over the past five years more than 230 hotels have been converted either from a standalone property to a brand or migrated from one brand to another. However, the rate of conversions has not increased much during this period. Brand conversions still constitute only 20-25 per cent of the total signings in the country. It is expected that the hotel conversions, particularly standalone hotels joining larger brands, will gain considerable momentum in the next couple of years as both hotel owners and brands consider this proposition to tide over the current downturn.

Furthermore, the hotels sector has already adopted certain design changes to facilitate social distancing and elevate cleanliness and hygiene to ensure the safety of their guests and employees. Going forward, HVS Anarock further expects the sector to adopt substantial design changes – smaller lobbies & rationalized room sizes, keyless check-ins, lesser number of specialty restaurants, sustainable design elements etc. – by incorporating some of the best practices followed in more mature hospitality markets. The sweet spot for the Indian hotels sector will be in the 85-100 keys category. Overbuilding and overspending on hotels has been a perennial problem in the sector, which we now expect will be corrected.

The report predicts that mixed-use developments are going to be the most sustainable model for hotels going forward as they leverage the best of each asset class, while hedging the risks for the investors and enhancing the overall experience for the guests. These projects provide better returns to investors by maximizing land-use efficiency, utilizing FSI optimally and lowering capital costs, thus, improving the viability of the hotel project.

Apart from that, vacation home rentals will become one of the fastest growing segments Traveller & guest preferences have evolved significantly in the last one year, with hygiene, cleanliness, safety, and privacy becoming their top priorities. People will prefer smaller, independent, and contained spaces, which will be considered ‘safe havens’ for travel, specifically in the upper-upscale category.

These evolving preferences will lead to the growth of vacation home rentals in the country, especially when the segment develops and professionalizes further, as they provide guests additional privacy and better value compared to a hotel. 

Technology will bring in fundamental changes in hotel operations Technology adoption for hotels post the COVID impact will be at a much faster pace than witnessed earlier by the sector. Efficient usage of technology will be the new focus as it helps in reducing both capital and operating costs, improving profitability, and streamlining processes, while enhancing guest experience and personalization.

Staff to room ratios are also expected to reduce in the coming days. Hotels were forced to resort to job cuts in 2020 to reduce costs and have realized that the earlier staffing ratio may not be needed to operate efficiently. Moreover, almost every aspect of ‘guest service’ is now available through the guests’ mobile devices and hotels are also likely to increase the usage of predictive data analytics to personalize guest services in the post-COVID era. 

The hotels sector – having finally realized the true potential of ancillary revenues in improving the topline – is likely to follow the aviation industry’s lead, making every enhancement in customer experience payable and not gratis, as the industry has been providing for time immemorial.

Hotels will be repurposed as co-working & boutique office spaces. The ‘work-from-anywhere’ or hybrid work environment is here to stay. Hotels already have all the required facilities and infrastructure needed by professionals to conduct their businesses. Some hoteliers can, therefore, repurpose certain areas of their property for boutique corporate offices. They can also lease out or partner with organizations in the coworking industry to develop special packages for professionals looking for an ‘office’ space near their homes. Certain sections in a hotel can also be repurposed to allow occupation of the space by high-net-worth organizations and companies.

Hoteliers will reimagine F&B by outsourcing hotel outlets to standalone marquee restaurants that had made their mark in the pre-COVID era but are now facing an existential crisis post- COVID. This model can be beneficial for both the stakeholders, as hotels get an opportunity to win-back the customer share they lost to standalone restaurants over the last few years, while the restaurants get an opportunity to renew operations on a revenue share model and benefit from captive clientele as hotels get back to normalcy.

Management agreements and the owner-operator relationship came under the scanner during the pandemic as the stakeholders tried to survive the adverse market conditions. Minor changes such as reduction in discretionary marketing and sales spends, and flexibility to owners on payments has already been implemented. Fluidity has also increased on certain insurance clauses, implementation of brand standards, force majeure amendments, sales and marketing spend, and usage of FF&E reserves.

Going forward, we expect owners to increasingly stress on changes in certain provisions in the management agreements such as shorter terms, lower base fee, higher incentive fee, and renegotiation of group services fee to name a few.

With franchising steadily gaining popularity in India, we expect the role of a third-party asset manager, which has traditionally been underplayed in the country, to become crucial as both hotel owners and operators realize the true benefits & potential of working with professional asset managers to review and improve their hotel performance in the post- COVID era.

Last but not the least, sustainability will become more than a buzzword as the only silver lining during the lockdown was the positive impact it had on the environment. Adopting eco-friendly practices will not only help hotels win over travellers, who will increasingly prefer ‘green’ holidays in the COVID era but will also help in reducing costs and improving the bottom line in the longer run. The current crisis has been an eye-opener of sorts for all of us and it is imperative that all the stakeholders collaborate to increase the sector’s focus on sustainability by adopting greener practices as we gradually embark on the path to recovery.



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