NEW DELHI-
Need a hotel room in India? Better book early and bring big bucks. As the nation’s economy booms, foreigners and newly affluent Indians are flocking to the country’s big cities in unprecedented numbers–but are finding a shortage of places to stay.
“We had to scramble, we practically begged to get a room,” said Danny Leiber, a Los Angeles businessman who had flown to New Delhi on short notice for a “big deal–we’re talking multimillion dollars.”
Begging worked out well for Leiber–he’d scored a room at New Delhi’s elegant Oberoi Hotel. The price: $450 a night.
In particular, there’s a shortage of mid-range hotels in places like Mumbai Bangalore and New Delhi. Soaring urban land prices are making it expensive for hotel chains to expand–and when they do, they’re building pricier hotels.
Much of the growth is due to business travelers, but tourist numbers are also up.
Sheraton, Hilton and Holiday Inn are already here, and Four Seasons, Accor and Pan Pacific say they are coming–but not fast enough, it seems.
India “immediately needs another 100,000 rooms”–more than double the current amount–said Lalit Suri, the chairman and managing director of India’s Bharat Hotels. He estimated that would require investment of up to $17.4 billion.
What India is going to get will fall short of that.
A total of 300 hotel projects have been approved by the government and are in varying stages of development, said Amitabh Kant, a Tourism Ministry official. Most are likely to be completed in the next three years and should increase capacity by about 75,000 rooms, he said.
Nearly half of the new projects are luxury hotels, and account for about $1.58 billion in investment, said Subhash Goyal, chairman of the Indian Association of Tour Operators. He was not able to provide figures for total investment in the hotel sector.
That means the current situation of high prices and low availability is expected to continue for the foreseeable future, and worsen at around key events, like Commonwealth Games in 2010 and the cricket World Cup in 2011.
Foreign hotel operators are eager to invest, helped by changes in Indian law in recent years that allow full foreign ownership of hotels.
“The timing is excellent,” said Scott Woroch, a senior vice president of Canada’s Four Seasons Hotels and Resorts, which plans to open its first hotel here next year in Mumbai in a partnership with the India’s Magnus Hotel group.
“There is a growing demand with respect to international visits to key urban and resort destinations,” he said.
Four Seasons is also “looking at a number of opportunities in New Delhi and Bangalore” and are studying possibilities in Goa to the south, and Rajasthan in the northwest, he said.
The Sheraton Group is collaborating with the Indian Tobacco Company in running 10 luxury hotels across the country for more than a decade and is also looking to expand.
“We believe that India has very strong growth potential, across all our brands,” said Hwee Peng Yeo, a spokesman for Starwood Asia Pacific Hotels & Resorts Pvt. Ltd, part of the Sheraton Group.
Experts say that the skyrocketing price of land in Indian cities is keeping more projects from getting under way.
For example, a 2.5-acre plot for building a new hotel was sold recently for $43.4 million, said R. K. Singh, the Delhi Development Authority’s land commissioner.
By some estimates, those kinds of prices mean that land costs would account for the bulk of building a new hotel in India, where materials and labor remain incredibly cheap. The industry standard is for land to account for 15 percent of the cost of a new hotel.
Until a few years ago, hotel rooms were readily available in India’s big cities and a night in the top establishments tended to run in the $50 to $60 range.
But India’s hotel industry has simply failed to keep up with the country’s hectic economic growth, averaging about 8 percent a year.
Over the past decade, the total number of hotel rooms in all categories–a figure that includes everything from filthy hostels to opulent resorts–has only grown 10 percent to about 92,000.
That’s lifted the price of a night in a five-star hotel, which international business travelers tend to use, to an average $325, according to the tour operators association.
Foreign visitor numbers have nearly doubled over the past decade to just under 4 million. But domestic travel accounts for most of the growth.
With a growing number of wealthy Indians as well as an expanding middle class, the number of Indians traveling within the country has nearly doubled in the past decade to about 350 million, according to the Indian Association of Tour Operators.
One firm, the London-based India Hospitality Corp., has raised $100 million to build or acquire mid-level hotels in India, said the company’s chief executive, Jason Ader.
Ader says his company views India’s hotel industry as high-growth but fragmented, offering profit potential among the most attractive in the world.
The non-luxury market has been overlooked by major Indian players like Taj Hotels, Resorts and Palaces and Oberoi Group, Ader said. He declined to name the Indian companies his group was negotiating with for collaboration, but said he expects to firm up plans by early 2007.
Local hotel chains have not been aggressive about growing, Ader said. IHC will be able to use its expertise in management and finance to make its plans work, and the $100 million it raised shows shareholders are confident that its strategy will deliver, he said.
