india hotels outlook · india hotels outlook: impact of covid-19 | 8 india, however, continues to...
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India Hotels Outlook: Impact of COVID-19 | 1
India Hotels OutlookImpact of COVID-19
hvs.comanarock.com
Follow us onHVS India & South Asia
India Hotels Outlook: Impact of COVID-19 | 2
2015 2016 2017 2018 2019 1H2020-10.0%
-5.0%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
40.0%RevPAR
The hotel growth cycle abruptly ended after 5 yearsof consecutive RevPAR growth
Source: STRINCREASE DECREASE
The markets were set on a path to recover the grounds lost due to the past disruptive events and supply overhang as the year 2020 started on a positive note with strong performances in the first two months. The onset of COVID-19 and the subsequent travel restrictions and nation-wide lockdown, however, has had an unprecedented impact on the sector.
India Hotels Outlook: Impact of COVID-19 | 3
Unprecedented downturn – Indian hospitality sector
Estimated Total Revenue Loss 2020INR 89,813 Cr
Estimated Total Revenue 2019INR 1,58,113 Cr
Source: HVS ResearchNote: HVS Estimate as on April 2020
REVENUE LOSS
OrganisedINR 40,309 Cr
Semi OrganisedINR 8,379 Cr
UnorganisedINR 41,126 Cr
OCCUPANCY
31.6percentage points
57.8%
REVPAR
India Hotels Outlook: Impact of COVID-19 | 4
Where do we go from here?
India Hotels Outlook: Impact of COVID-19 | 5
Prior cycles did not witness severe erosionin demand from disruptive events
-15.0%
-10.0%
-5.0%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
200
0
200
1
200
2
200
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200
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200
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200
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200
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200
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200
9
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
Cha
nge
in D
eman
d
Demand Change%
Sep 2001
(09/11)
2003(SARS)
ADR Pick-up
INCREASE DECREASE
Immediately post 2001 and 2008 crises, demand grew at strong rates following short term impacts. Demand in the 2010 decade grew at 5.3% CAGR as against 10.8% CAGR in the 2000 decade.
CAGR 2010-2019: 5.3%CAGR 2000-2009: 10.8%
Sep 2008 (GFC)
2000 DECADE 2010 DECADE
Source: HVS Research & STR
India Hotels Outlook: Impact of COVID-19 | 6
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
200
0
200
1
200
2
200
3
200
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200
5
200
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200
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200
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200
9
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
Cha
nge
in S
upp
ly
Supply Change%
Prior cycles supply growth has varied witha significant slowdown in the current decade
Sep 2001
(09/11)
2003(SARS)
ADR Pick-up
2000 DECADE 2010 DECADE
Supply growth in the 2010 decade has been substantially lower at 51% as compared to a 158% growth in inventory in the 2000 decade.
CAGR 2010-2019: 4.1%CAGR 2000-2009: 10.3%
Sep 2008 (GFC)
Source: HVS Research & STR
INCREASE
India Hotels Outlook: Impact of COVID-19 | 7
0
5000
10000
15000
20000
25000
30000
35000
Mumbai Delhi NCR Bengaluru Chennai Goa Hyderabad Kolkata Pune
No
. of
Ro
om
s
2000 2019
Supply profile of major markets has transformed
5.7Times
6.3Times
14.3Times
6.4Times 7.3
Times 11.1Times
7.3Times
15.6Times
Pune, followed by Bengaluru and Hyderabad, the tech epitomes of India, have witnessed the fastest growth in supply over the last two decades. Bengaluru has risen from being the 5th largest market in the country to the 2nd biggest.
Source: HVS Research & STR
India Hotels Outlook: Impact of COVID-19 | 8
India, however, continues to have the lowest proportion of branded hotel rooms compared with major Asian hotel markets.Shanghai and Beijing are nearly 10 times the size of our major hotel markets.
Supply profile of major Asian markets
29,499 24,667 25,842
72,541 61,730
75,147
137,748
269,269
250,591
95,040
-
50,000
100,000
150,000
200,000
250,000
300,000
Delhi NCR* Mumbai Bengaluru Singapore Jakarta Hong Kong Tokyo Shanghai Beijing Bangkok
No
. of
Ho
tel R
oo
ms
Source: HVS Research & STR
India Hotels Outlook: Impact of COVID-19 | 9
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Cha
nge
in O
ccup
ancy
-5.0%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
Prior cycles Occupancy change
Occupancy growth rates in the 2010 decade has been lower than the 2000 decade on account of supply absorption. Since 2013, occupancy growth has recovered much of the lost ground until it was hit by the COVID-19 impact.
Sep 2001
(09/11)
2003(SARS)
ADR Pick-up
INCREASE DECREASE
Average Growth 2010-2019: 0.7%Average Growth 2000-2009: 0.6%
Sep 2008 (GFC)
2000 DECADE 2010 DECADE
Source: HVS Research & STR
India Hotels Outlook: Impact of COVID-19 | 10
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Rat
e G
row
th
-20.0%
0.0%
20.0%
40.0%
60.0%
80.0%
100.0%
Prior cycles Average Rate change
The industry witnessed its largest rate growth in the 2000 decade @ 6.3% CAGR as the country’s economy opened post liberalization and demand outstripped supply by a significant margin. Apart from 2017, average rate growth, post the GFC crisis,has been limited in the 2010 decade growing at a CAGR of 1.7%.
INCREASE DECREASE
CAGR 2010-2019: 1.7%CAGR 2000-2009: 6.3%
2000 DECADE 2010 DECADE
Sep 2001
(09/11)
2003(SARS)
ADR Pick-up
Sep 2008 (GFC)
Source: HVS Research & STR
India Hotels Outlook: Impact of COVID-19 | 11
Outlook for demand
Domestic tourists will be major demand drivers. ‘Revenge’ travel witnessed in
China could foster among Indians too.
The ~25 Mn outbound Indian travelers will also be an attractive segment for
the leisure market.
LEISURE
Corporates are expected to put restrictions on non-essential employee travel. Even for the essential employee travel, allowance limits are likely to be
reduced.
Senior Management travel also expected to reduce in the short term.
CORPORATE
The number of International Corporate MICE travelers will be significantly
reduced.
A large number of weddings planned at international destinations have
relocated to domestic destinations. The size of the weddings will be reduced.
MICE
Business Midscale & Economy Hotels to recover faster than Luxury & Upscale counterparts.
Leisure Luxury & Upscale Hotels to recover quicker than the Economy & Midscale counterparts.
India Hotels Outlook: Impact of COVID-19 | 12
Outlook for Supply growth
Muted market conditions will likely
lead to delayed openings; some
projects may be on hold pending
recovery.
Financing challenges on account of
negative sentiment for the sector is likely
to delay projects.
Changes in market conditions may
render proposed projects infeasible; as
a result, some projects may be
postponed or canceled.
Under-construction projects may face
delays on account of labour shortages and issues pertaining to vendors and supply
chain.
Some properties may close on account of financial stress and not reopen for an
extended period of time, resulting in negative supply
growth.
Some properties are likely to be repurposed to other asset classes such as Hospital, Student Housing, and Co-Living.
As of May 2020, supply was forecast to increase at a CAGR of 2.8% during the 2020-2024 period. Given the recent events, supply growth is now expected to be lower, and at a slower pace, than previously anticipated.
India Hotels Outlook: Impact of COVID-19 | 13
₹5,
830
₹5,
99
7
₹4
,850
₹4
,834
₹5,
793
₹6
,14
1
₹6
,44
8
₹3,
812
₹3,
96
7
₹1,
675
₹2,
782
₹3,
794
₹4
,114
₹4
,384
65.4% 66.2%
34.5%
57.5%
65.5% 67.0% 68.0%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
80.0%
₹ 0
₹ 1,000
₹ 2,000
₹ 3,000
₹ 4,000
₹ 5,000
₹ 6,000
2018 2019 2020F 2021F 2022F 2023F 2024F
Average Rate RevPAR Occupancy
We anticipate Occupancy & ADR to reach pre-COVID levelsby 2022 & 2023 respectively
The following forecasts for the India hotels industry reflects the current outlook of market participants, assuming recovery from COVID-19 begins in the second half of 2020.
-19.1%ADR
-31.6percentage points
Occupancy
-57.8%RevPAR
2020 Change %
Demand Change 3.3% 4.2% -47.2% 75.5% 17.9% 5.0% 2.7%
Supply Change 3.0% 3.0% 1.2% 5.3% 3.6% 2.6% 1.2% Source: HVS Research
India Hotels Outlook: Impact of COVID-19 | 14
Current forecasts in a historical context
14
1
2 22
3 3
Occupancy ADR RevPAR
Years to Recover
09/11 (2001) GFC (2008) COVID-19 (2020)
Nev
er R
eco
vere
d
Nev
er R
eco
vere
d
Nev
er R
eco
vere
d
# HVS Projections
#
‘Years to recover’ reflects the time from the event year to levels immediately prior to the major event. Both Occupancy and ADR will recover much quicker in this cycle due to limited supply growth subject to vaccine being in place not later than 2021.
Source: HVS Research
India Hotels Outlook: Impact of COVID-19 | 1515
More Vulnerable
• Full-service hotels, dependent on group business
• Gateway markets that depend on international travel
• “Fly to” markets that depend on air travel
• Independent non-affiliated properties
• Upscale & Luxury Hotels which have over 50% international business
• International leisure destinations with high FIT or GIT movement
• Hotels that primarily rely on transient segments
• Economy and midscale business hotels
• Suburban, small metro town properties
• “Drive-to” resorts
• Extended-stay hotels
• Drive-to markets, which can be expected to recover faster than those dependent on air travel
• Properties affiliated with strong brands
Less Vulnerable
How will markets & hotels be affected?
Secondary and tertiary markets are expected to hold up better.
Gateway and the top 10 metro markets will witness short term
volatility.
Motorable Leisure markets could see a quicker rebound.
India Hotels Outlook: Impact of COVID-19 | 16
Final thoughts
1
2
3
Supply growth is expected to slow significantly, as new or under constructions projects are delayed or abandoned and several highly leveraged assets are shutdown.
This cycle could be unique in terms of the rapid and dramatic decline of demand, like never seen before, but there could be some similarities to other cycles.
The pace of immediate demand growth is corelated to the level of stimulus infused by the government to revive growth, besides the availability of a cure and vaccine
We anticipate Occupancy and ADR to reach Pre-COVID levels by 2022 and 2023 respectively, with supply growth expected to remain dormant.
Upscale/Luxury Leisure and Branded Economy/Mid-market business hotels are expected to lead the recovery growth in the sector.
The transaction market will witness high activity due to likely softening in values and increased availability of stressed assets.
4
5
6
India Hotels Outlook: Impact of COVID-19 | 17
About HVS
Superior Results Through Unrivaled Hospitality Intelligence. Everywhere.
HVS has been supporting the hospitality industry in India and around the world for over 40 years. Our senior staff represents a collective 300+ years of experience advising our industry, including through multiple prior cycles and events.
Our expertise covers the full range of hospitality assets and spans the full lifecycle of a hotel, including services that support developers, owners, operators, lenders, and investors.
This knowledge and experience is available to support you as you navigate these challenging times. We are fully functional on a remote basis, so even though we are not currently traveling, our staff can access the full resources of HVS on your behalf.
Let us know how we can assist you.
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India Hotels Outlook: Impact of COVID-19 | 18
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