A mong the most severely hit markets worldwide during the pandemic have been hospitality and retail. India is no exception. The segments moved at snail’s pace in the last six to eight months. Now, with lockdowns easing and the travel industry gradually opening up, the hospitality realty market is seeing small signs of recovery.
The latest HVS-Anarock Hotels & Hospitality Overview states that occupancy is improving across most major markets. Leisure destinations such as Goa and Jaipur have been witnessing a noticeable rise in occupancy as people have started travelling for a change of pace, albeit to destinations closer to their cities. “Indian luxury travellers are seeking exclusive vacations and most domestic hotels have developed packages targeted at staycations, ‘work-from-hotel’, or day packages, and special F&B packages,” says Mandeep Lamba, President (South Asia) HVS-Anarock, adding that these innovations have sparked some recovery. Business hotels, however, continue to suffer. “Overall, occupancy has improved from about 10% in April 2020 to almost 26% in September 2020.”
Between January and September 2020, the industry saw a decline of 52.8% in Revenue Per Available Room (RevPAR) compared to the same period last year, states JLL Hotel Momentum India Q3 2020. In overall inventory volume, brand signings declined by 19% in Q3 2020 over Q3 2019, but international operators signed a greater number of keys than domestic ones.
Until 2022-23
The hospitality sector, across segments, is expected to incur an estimated total revenue loss of approximately ₹90,000 crore in 2020. “We anticipate occupancy and Average Daily Rate (ADR) to reach pre-COVID levels by 2022 and 2023, respectively, assuming that a vaccine is in place by early 2021 and becomes widely available before the end of the year,” says Lamba.
As per JLL’s report, the 11 key markets in the country reported a decrease in RevPAR performance in Q3 2020 over Q3 2019. Mumbai continues to be the RevPAR leader in absolute terms, despite a 71.7% decline in RevPAR. Bengaluru saw the sharpest decline of 88.1%. The international versus domestic signings ratio was 53:47 in terms of inventory volume. Demand in leisure destinations began seeing weekend occupancy spikes as the lockdown restrictions were further lifted in August.
Recently, Bengaluru-based Prestige Estates Projects signed a non-binding letter of intent with private equity major Blackstone Group to sell a few of its commercial offices, retail, and hotel properties. Reports indicate that the deal is aimed at reducing the realty company’s debt. “Hotel occupancies across most metro markets have reduced to single digits. The April-July 2020 period has been the worst for the travel industry in almost a century, across continents,” says Zaid Sadiq, Executive Director – Liaison and Hospitality, Prestige Group, that has partnered with Marriott International to develop properties in the South.
Sadiq explains how business travel remains non-existent, partly due to the caseload in India, and also due to multiple restrictions deployed by corporates across the globe. “International travel, a large contributor for most hotels (almost 50% or above), especially in luxury hotels and metro locations, remains dormant,” he says, explaining that hotels have been unable to make gains from F&B either, which typically contributes around 30% to the total revenue. “Having said that, F&B has seen a steady month-on-month growth over the last 2-3 months,” he says.
Hotels are struggling to achieve profitability primarily because of their high fixed costs and consequently high operating leverage. “Though there are some green shoots of recovery in sight, the road ahead towards steady profitability is a long drawn one. Given a complete change in business segmentation, with business travel coming to a standstill, the negative impact on tariffs is inevitable,” says Sadiq.
Chennai connect
Prestige has also tied up with Bengaluru’s Brigade Group to develop a shopping mall and a hotel in Chennai. “We have partnered to develop a 1 million sq.ft. project, primarily comprising a mall, and a relatively smaller portion of this development is a hotel. The property is located on OMR in Chennai and will be developed through a Limited Liability Partnership,” says Nirupa Shankar, Executive Director, Brigade Group.
On an average, the Asking Rental Rate (ARR) has dropped by approximately 40% in the hospitality industry. Which is why, Shankar says, it is essential for capital to be conserved. “We plan to go slow on the construction of hotels unless there is an external commitment to complete them. Once the industry starts to perform better and subject to availability of free cash flows, construction can resume,” she adds.
Zeroing in on Chennai, the Vande Bharat Mission was the key demand generator for hotels in the city in the last few months, but demand from this segment is now declining. “As a result, occupancy has declined from approximately 30% in July 2020 to around 23% in Sep 2020,” says Lamba.
The retail effect
With hotels increasingly coming up in mixed development projects that comprise malls, apartments, and offices, it is natural that retail spaces might also see traction when travel picks up. Anshuman Magazine, Chairman and CEO, India, South East Asia, Middle East & Africa, CBRE, says that while e-commerce is accelerating rapidly, especially in the festive season and the approaching wedding season, prime malls and high streets are also reporting growing footfalls. “Most of these spaces are currently offering lucrative discounts and schemes and have adopted social distancing norms. They are also optimising the use of tech mechanisms to enhance customer experience and engagement,” he says. He sees brick-and-mortar stores enhancing their online presence, the rise of ‘phydigital’ spaces, and new business formats that allow people to order online and pick up from stores.
There has been a month-on-month increase in footfalls since malls reopened in June, says Anuj Kejriwal, MD and CEO, Anarock Retail. While footfalls are yet to reach pre-COVID-19 levels, sales have definitely resumed, resulting in higher conversion ratios.
