The India hotel investment trading volume declined 84 per cent in 2020 compared to the peak witnessed in 2019. This is in great contrast to the previous years that had seen promising and consistent growth in occupancy and average daily rate (ADR) levels.
As per a recent report by JLL, the India-wide hotel performance registered a decline in RevPAR (Revenue per Available Room) by approximately 55 per cent over the previous year, closing at a RevPAR of Rs 1,675. While performance of business hotels has yet to fully recover, leisure markets led by domestic travellers had showcased some resilience in the last quarter of 2020. However, the renewed Covid surge has again come as a rude shock to the hospitality industry in India.
“Even as the travel and hotel industry was emerging out of the impact of the first wave of Covid-19, the renewed surge in Covid cases has come as a rude shock for the hospitality industry. We have started to witness hotel and flight cancellations owing to increased cases and related interstate travel restrictions. While business travel was yet to pick up, it was the leisure segment and improved Food and Beverage (F&B) sales that were driving the revenue for troubled hoteliers. The new wave unfortunately threatens the revival. Furthermore, summer holiday season is around the corner, but we are staring into another lean summer holiday season from a travel standpoint,” Jaideep Dang, Managing Director, Hotels and Hospitality Group, JLL India told THE WEEK.
As per the JLL report, during the first wave of the pandemic hotels were compelled to reset their business plans. Standard operating procedures were drastically transformed with adaptation of available technology to encourage social distancing and increased focus on health safety and hygiene practices. New hotel developments slowed down, and most hotel openings were deferred by at least six months.
According to the STR (Smith Travel Research), data, Delhi’s hotel market witnessed a 32 per cent PP* decline in occupancy and a 24.1 per cent decline in Average Daily Rate (ADR), resulting in a 57.3 per cent decline in RevPAR, in 2020 over 2019. Additionally, Bengaluru’s hospitality market witnessed a 39 per cent pp decline in occupancy and a 23.1 per cent decline in ADR, resulting in a 67.7 per cent decline in RevPAR, as compared to 2019.
Interestingly, as per the JLL report brand signings in India decreased by 38 per cent over 2019 with 125 hotels and over 12,000 keys. 2020 also saw a revival of demand firstly in the leisure destinations, with the maximum volume of signings in tier-III cities. The JLL report points out that the tourism industry appears to have taken the hardest hit across the globe of all the affected industries in the Covid-19 pandemic.
“The post-pandemic world is bound to see more changes. Realignment of source markets, guest preferences, physical space planning will all be more dynamic and will be discussed more often in boardrooms and team meetings. Capital assistance has emerged as the focal point and will remain the need of the hour to help hotels sustain till demand picks up,” remarked Dang.
The report also observes that in India, hotel conversions had seen a consistent increase, nearly doubling from 33 conversions in 2016 to 65 in 2019. However, the conversions plummeted to just 29 hotels in 2020 under the impact of the Covid-19 pandemic. International hotel chains came at par with domestic chains in terms of converted hotel rooms, stacking at 50:50, showing increased flexibility to sign smaller sized hotels. There were no portfolio conversion deals concluded in 2020. The erratic uncertainty in the market made the existing or committed hotel owners to adopt a further cautious approach than take any conclusive investment decisions in the year. With the gradual return in demand over the year or so, the hotel signings are expected to bounce back with some portfolio conversion deals as well.
Investment activity has been on a pause since March 2020 post the nationwide lockdown. As the country gradually opened up with the unlock measures in phases since June 2020, the sentiment for evaluating hotel assets gained a little traction. The preference for assets in leisure markets increased given the strong recovery of leisure travel across the country since the third quarter of 2020. Investors were also keen on evaluating distressed opportunities in key markets, given last years' decline in corporate travel and its slow and steady recovery has impacted operational cash flows.
In the beginning of 2021, with month-on-month increase in hotel room demand, there were emerging signs of investors evaluating hotel assets in the country; however, valuations are at a discount to pre-Covid levels keeping in mind a slower demand and rate revival. Investors are also mostly inclined to evaluate operational assets in key markets rather than greenfield or brownfield developments. The JLL report says that a few developers with strong balance sheets are also actively evaluating hotel deals. This trend has also been witnessed on a global level, where private equity firms and institutional investors have large pools of opportunistic capital to deploy for funding or acquiring quality assets in major cities, which may become available for the reasons highlighted earlier.
The JLL report also points out that the current Covid-19 pandemic will continue to have some impact on both commercial and leisure hotel markets across the country; however, it is expected that leisure markets will lead to the overall recovery with pent up domestic demand. Business travel, which has always formed the lion’s share of the market, will continue to see a rather muted recovery.
