Slowdown, oversupply to hit luxury hotels: CRISIL

19 January 2009

The profitability of 5-star deluxe and 5-star hotels to be impacted significantly due to a sharp decline in occupancy rates arising from falling demand for hotel rooms as well as additional rooms being added across cities in India.

CRISIL Research expects the demand for rooms in the premium segment is expected to fall by 11 per cent in 2008-09 as compared to the previous year, and further decline by 15.5 per cent in 2009-10. At the same time, premium segment room inventory is expected to collectively grow at a CAGR of 9 per cent from 2007-08 to 2011-12 across 12  major cities.

Consequently, hotel occupancy rates are expected to show their steepest decline in a decade, reversing the trend of very high growth rates witnessed in these select destinations during the past few years.

The 12 destinations covered as part of CRISIL Research's analysis are Agra, Ahmedabad, Bengaluru, Chennai, Goa, Hyderabad, Jaipur, Kerala, Kolkata, Mumbai (North and South), NCR and Pune.

Additional supply, combined with lower corporate travel expenditures in the slowing global and domestic economies, would result in a decline in occupancy rates.

Occupancy rates are expected to come down from 72 per cent in 2007-08 to 62 per cent in 2008-09. Says Sridhar Chandrasekhar, Head, CRISIL Research, ''We expect occupancy rates to further drop to 47 per cent in 2009-10 and hover around this rate in 2010-11. With occupancy rates falling, hoteliers are expected to lower