Emerging India Suffering Amid Oversupply

10 years, 8 months ago - July 25, 2013
Emerging India suffering amid oversupply
Once seen as an unbridled land of opportunity, India is suffering under the weight of oversupply in many key markets.

REPORT FROM INDIA—India’s burgeoning hotel industry is grappling with the problem of having too much.

Optimistic forecasts for increased demand sparked a blaze of investment in recent years. But the increase in supply did not match an increase in demand. In fact, decreasing demand because of economic factors and competition is making the situation all the more biting.

“Year-to-date April 2013, three cities to report negative demand growth included: Chennai, Hyderabad and Jaipur. At the same time, those cities are reporting quite high levels of supply growth,” said Naureen Ahmed, manager of marketing and analysis for STR Global, sister company of Hotel News Now.

“Chennai reported the highest supply growth (+14.1%), followed by 7.3% for Delhi-NCR and Hyderabad a close third at 7.2% growth,” she continued. “At the same time, Delhi-NCR has only reported a 1.3% demand growth.

“Such high supply-growth rates and limited and, in some cases, negative demand growth are creating oversupply situations for some hotel markets in India,” Ahmed said.

Sources said the pains should be short-lived, however. And what oversupply does exist is concentrated in certain pockets only.

Time for a turnaround?
“This is a short-term or temporary phenomenon,” said Satyen Jain, CEO of Pride Hotels Limited. “In the last one to two years, supply has gone up while the demand has not kept pace. Increased supply came in one stroke, while demand will grow in a staggered manner. This is more pronounced in eight to 10 clusters.”

Suresh Kumar, CEO of Fortune Park Hotels, which is a division of ITC Hotels operating in the business and leisure destinations, shared a similar sentiment.

“When you look at the fundamentals, while the demand grows incrementally, the supply hits the market in quantum, leading to a mismatch in demand and supply in the short term. But in the next year or two the demand is bound to catch up with the supply, thereby restoring the equilibrium between the two variables.”
 
The imbalance between supply and demand has been building for years, sources confirmed.

“This slower growth in demand vis-à-vis supply can be seen from 2011 as well, where for the whole country supply grew by 5.8% and demand grew by only 2.5%,” Ahmed said. “This trend continued in 2012, where supply increased by 5.4% and demand correspondingly grew by 3.6%.

“As a result, the occupancy for the country declined by 3.1% in 2011 and 1.8% in 2012, achieving occupancy rates of 58.7% and 57.6%, respectively,” she said.

Kumar of Fortune Park Hotels expects the imbalance to continue for an additional one to two years. “It is just a matter of time before the equilibrium is restored.”
 
Pride Hotels’ Jain gave a timetable a bit further into the future.

“The short-term mismatch should continue for the next two to three years,” he said. “The oversupply can be pegged at 5% to 10%. It will stabilize eventually.”

Pockets of performance
Not all Indian markets are created equal, sources said.

“The micro markets include Whitefield in Bangalore—Electronic city area,” Jain said. “Here, initially three to four hotels were there, which were always packed. Since land was available in plenty, many more properties came up so there are now 10 to 12 hotels. But the industry in that area has not grown at the same pace, so this excess capacity of the hotel is yet to be absorbed. Other areas include Begumpet area in Hyderabad, Nagar Road in Pune.”
 
The upscale and upper-upscale segments are feeling much of the pinch, Kumar said.

“This segment has experienced a decline of 6% to 7% in average rates and is experiencing a fierce competitive environment.”

Jain said the luxury segment is not immune either.

“In the luxury category earlier there were just three to four top names. Now there are plenty of new properties, so there is high pressure as completion has increased.”

Ahmed said the data suggests pockets of strength as well.

“It would be wrong to paint the entire country with the same brush,” she said. “Goa, for example, has achieved occupancy rates of 77% year-to-date April 2013 with over 130,000 rooms available and having sold over 100,000 rooms in the first four months of this year.”

Location plays a key role to survival now, Jain said.
 
“Even within a city, one part may see an oversupply, while in another demand may overrun the supply,” he said. “Location plays a key role in the survival and maintaining profitability.”

Several of Pride Hotels’ properties are located outside of concentrated pockets of development, he explained. “In Jaipur, we are away from the city on a 15-acre property and are like a resort. The city, on the other hand, is crowded with hotels.”

Overcrowding has yet to quell hoteliers’ appetite for development, however.

“We plan to work toward taking further our vision of unfurling a Fortune at every 180 kilometers (112 miles) by concentrating on metro, mini-metro, tier I and tier II cities across India,” Kumar said.  “The chain has extensive expansion plans, and we are looking at being a 90 hotels strong chain by the year 2015.”

 

 

Text by Hotel News Now

We also recommend

Tags Cloud
2010accidentsadvertisingAfrAsiaafricaagalegaagroAir Franceair mauritiusAirlinesairportairway coffeeAlvaro SobrinhoamazonAmeenah Gurib-FakimAMLandroidApollo Bramwellappleappointmentsappsarrestasiaauditaudit reportaustraliaaviationawardsBABagatelleBAIBangladeshbankbanksbarclaysbeachbeachesBeau Bassin-Rose HillbetamaxBOIboko haramBollywoodBOMbombingbpmlBPOBramer BankbrazilbrexitbudgetBusinessCanadacanecareercareer tipscasinoCCIDCCMCEBcementChagosCHCchinaCIELcigarettesconferenceConfinementCongoconstructioncontestCoronaviruscorruptionCourtCourtscouvre-feuCOVID-19CPBCPEcreativitycrisiscruise shipsCSOCT PowerCultureCurepipecustomerscustomsCWAcyclonedamDawood RawatDBMdeficitdenguedevelopmentdoctorsDomaine les PaillesDPPdrug traffickingdrugsDTAADuty FreeearthquakeebolaecoécoleseconomyEducationEgyptelectionselectoral reformelectricityEmiratesEmtelenergyENLentrepreneurshipEUEuropeeventsexamexamsexpoexportfacebookfairfarmersfeeFIFA World CupfinancefinancesFirefishfishingFlacqFlic-en-FlacFloodsfoodFootballforecastforeign workersFrancefraudfruitsFSCfuelfunnyGAARgamblinggamesgasgazaGermanygooglegovernmentGRAgreengreen energyhackershajjhawkershealthhealthcareHeritage Cityhistoryholidayshorse racingHospitalhotelhotel businesshotelshow toHRHRDCHSBCHSCIBLICACICTICTAID cardillegal fishingIMFimportindiaIndian OceanIndonesiainflationinfrastructureinnovationsinsuranceinternetInterviewinterview tipsinvestmentinvestmentsiosiPadiphoneiraniraqIRSISISisraelITItalyjapanJin FeijobjobsjournalismKenyaKPMGlandlawlawslayoffsleadershipLepeploanslocal governmentLockdownlotteryLRTLufthansaMadagascarmalaysiamalaysia airlinesmanagementmanagement tipsmanufacturingmarketmarketingmarketsMauBankMauritiansmauritiusMBCMCBMCCImeccaMedical CouncilmedicamentsmedicineMedPointmeetingMEFMESMetro ExpressMEXAMicrosoftMIDMIEmigrationminimum salaryminimum wageMITDmlMMMmoneymoney launderingmotivationmoviesMozambiqueMPAMPCMPCBMRAMSCMSMMTMTCMTPAMusicMV BenitaNandanee SoornackNarendra ModinatureNavin RamgoolamNavind KistnahNCBnceNDUnetworkingNew Mauritius HotelsNHDCNigeriaNobel Prizenorth koreaNTCNWCCofficialsoffshoreoilOlympic GamesOmnicaneorangeOUMPakistanpalestineparliamentPaul BérengerPhilippinesPhoenix Beveragespicture of the daypiracyplagePMPMOpmsdPNQpolicepoliticsportPort LouisPort-LouispostPravind JugnauthPRBpricepricesproblemprostitutionprotestspsacPSCpsychologyPTRpublic servicequatre-bornesrainsRakesh Gooljauryratingsreal estatereformsrepo rateRESrestaurantsresultresultsReunionriceroadsRoches-Noires caseRodriguesRogersRose-HillRoshi BhadainRussiaSAJsalariessalarysalessamsungsaudi arabiasbmSCscamscandalscholarshipscholarshipsSchoolschoolssciencesecuritySeychellessharksshootingshoppingshopping mallSICsicomsingaporeSITskillssmart citysmartphonesSMeSMEDASobrinho casesocial mediasocial networks & messengerssolar energysouthsouth africasouth koreasportSportsstartupsstatisticsstatsSTCstrategystreet vendorsstrikestudysuccesssugarSun Tan caseSunkai casesyriaTAtabletsTanzaniataxtax heaventaxesteaTECtechnologytelecomterrorismtextilethailandthefttime managementtipstourismtradingtrainingstransporttrendstunaTurfTurkeyTVtyphoonukukraineunemploymentunionsuniversityuomUSUTMvacanciesVacoas Popular Multipurpose Cooperative SocietyVacoas-Phoenixvarma casevegetablesVideo of the DayvisaVishnu LutchmeenaraidooWaterWaterparkWeatherWhitedot Casewi-fiWMAWorld BankXavier-Luc DuvalYEPzimbabwe