The demand in Ahmedabad is essentially driven by business travellers and the hotel room inventory in the city is thus primarily mid-market in orientation.
The massive earthquake in 2001 and a string of mishaps thereafter shook the confidence of investors in the state of Gujarat. Since 2001, however Ahmedabad has been steadily gaining popularity and has been referred to as the nerve centre of Gujarat.
About 88% of the total accommodated demand is corporate in nature. This is expected to amplify with the boost in the city’s economic income. Also, the upsurge in number of SEZs being set up in the city is expected to augment the demand for good quality hotels in the city.
The hospitality sector here is still in a stage of emergence and, with commercial activities intensifying in and around the city, the sector holds great potential.
The hotel room inventory in Ahmedabad is primarily mid-market in orientation. The city had not witnessed any new supply for about five-to-seven years until recently, with Lemontree, Sarovar Portico, The Royal Orchid Central and St Laurn becoming operational. Due to limited or no supply for some time, the occupancy and ARRs in the city have been stable. But with the new supply and brands entering the city, the dynamics are changing gradually.
The total room inventory across all the categories (budget, mid-scale and up-scale segment) in Ahmedabad is approximately 1,900 rooms. Unorganised and budget category constitutes about 66% (1,300 rooms) of the total room inventory and upper mid-scale (four-star) sector contributes about 13% (250 rooms), while the up-scale category consists of 21%. On account of consistent growth levels – both business and leisure – the citywide occupancy has been stable at around 65%. The city is likely to see an addition of 1,400 rooms to the existing room inventory over the next five years.
The trend in the hospitality market between 2007 and 2009 is shown to have declined from 73% in 2007 to 60% in 2008 and to 59% in 2009.
Due to restrained demand, there has been some decrease in ARR in the competitive market, from approximately Rs5,400 in 2007 to approximately Rs4,100 by 2009. C&W Hospitality research indicates that a large number of hotels will experience a further weakening of ARRs as a result of the introduction of more new inventory (approximately 600-rooms in the competitive market.
The demand in the city is essentially driven by business travellers constituting 71% of the entire demand. The long-stay segment (constituting guests staying over 15-days) contributes 6.7%. The MICE segment contributes a healthy 11.3%. Leisure and others contribute 11%.
While we anticipate demand to pick up by the end of the 2010 year, the market-wide occupancy is likely to be impacted as a result of the quantum of room inventory that is likely to enter the market.
Average rates are further likely to experience a consolidation over the next two-to-three years as hotels enter the market with aggressive sales and marketing and revenue management strategies. It is likely that value-for-money and rate positioning is going to become a key driver for hotel bookings over the next five years.
The outlook for Ahmedabad is forward looking and focussed on the quantum of new supply which is likely to enter the market and the ability for these hotels to position themselves as a unique product, providing a considerable value proposition to the end-user.
Demand is likely to experience an upswing towards the end of the 2010 year, from the low from mid 2008 and 2009, which will facilitate an opportunity for profitability for commercial accommodation in Ahmedabad.
The marketwide ARRs are expected to decline by 5-10% driven negatively by the quantum of rooms supply anticipated to enter the market and positively counteracted by the proportion of upscale hotels.
The demand that was suppressed due to recessionary trends will resurface, but will be absorbed by the upcoming supply and is likely to result in minimal growth in occupancies.
