Following an abysmal performance in 2020, the Indian hotel sector found some much-needed hope in 2021, as it made steady headway on the road to recovery. The year began on a promising note with the commencement of the vaccination program, which, combined with a decrease in COVID cases, improved travel sentiment in the country. Domestic leisure travel drove the recovery throughout the year, with business travel also showing early signs of revival as most businesses and organizations gradually started returning to a full or hybrid work-from-office model during the year. Additionally, weddings and social events, as well as the resurgence of small-to-medium sized domestic MICE events, helped to stimulate hotel demand.
While there was significant recovery, the year was not without pandemic-related setbacks, as the emergence of new COVID variants acted as temporary roadblocks in the sector’s recovery. Travelers and hospitality sector players, however, continued to adapt to the evolving situation and found new ways to move forward.
According to HVS ANAROCK, This helped industry-wide occupancy to reach nearly 50% in the first quarter, a first since the pandemic began. As hotels tried to shore up occupancy, average rates started struggling, declining by 29-32% over the previous year.
Demand was subdued in the second quarter due to fresh restrictions and lockdowns in several states because of the devastating second wave in the country.
Nonetheless, unlike the previous year, when most hotels were closed or relied solely on quarantine business to survive, this time hoteliers were proactive in focusing on
alternative customer segments and ancillary revenue streams to weather the storm. Some hotels, especially in commercial hubs, partnered with hospitals to provide isolation & quarantine facilities. As a result, occupancy was in range of 26-28% during the quarter compared to 15-17% during the same period in 2020. Average rates also began to improve, rising 7% in Q2 2021 compared to Q2 2020, when hotels were solely reliant on quarantine business.
With fewer restrictions across states and higher vaccination rate, travel demand rebounded substantially in the third quarter of the year.
After the second wave, many began travelling again to escape the lockdown blues and work from-home fatigue. Weekend getaways to motorable leisure spots and ‘staycations’ at luxury hotels in cities became popular travel options. As a result, the sector saw a 49-52% occupancy rate in the third quarter, with a RevPAR of ₹2,000 – ₹2,300, representing a 170% Y-o-Y increase.
Business travel began to pick up moderately in the last quarter of the year as most businesses and organizations gradually started returning to a full or hybrid work-from-office model.
Additionally, weddings, social events, and the resurgence of small-to-medium-sized domestic MICE# events, helped to stimulate hotel demand during the quarter. However, the emergence of the new COVID variant, Omicron, slowed the recovery towards the end of the year. The sector closed the quarter with an occupancy of 56- 58%, slightly lower than industry expectations. ARR continued to improve, progressively approaching pre-COVID levels. Rates in the fourth quarter of the year were at ₹5,300 – ₹5,500, reaching 90% of pre-COVID levels, renewing the sector’s hope for recovery.
Key Takeaways – Leisure vs Business Markets in 2021
Leisure markets continued to drive the recovery, with even smaller leisure markets in the country such as Haridwar, Corbett, and hill stations in Himachal Pradesh, Uttarakhand, and Jammu & Kashmir, to name a few, recording all time high ARRs. Some leisure markets such as Goa surpassed pre-pandemic levels of performance by the end of the year. Luxury and upper upscale properties performed exceedingly well in these markets, given that the upwardly mobile were unable to take any overseas vacations. Hotel markets in business destinations, especially those focused on IT-ITeS such as Bengaluru and Pune, were slower to recover.
Goa emerged as the go-to holiday destination for domestic tourists as well as outbound
Indians who could not vacation abroad due to the limitations on overseas travel.
As a result, occupancy improved steadily month after month, reaching 74-76% in December 2021, just 2 percentage points shy of pre-pandemic levels for the month, while the average rates surpassed pre-pandemic levels by over 19% in December 2021.
Chandigarh, also popularly known as the Tri-city region, is quickly becoming the new hospitality hotspot in India. Following the second wave, Chandigarh’s hotel sector has recovered quicker than several other markets in the country, with occupancy rates rising from a low of around 13-15% in May 2021, the peak of the second wave – to 69-71% by
December 2021, inching closer to pre-pandemic levels. Moreover, in contrast to numerous other Indian business destinations, average hotel rates in Chandigarh have improved significantly, and were 10-12% higher than pre-pandemic levels.
Brand Signings (2019-2021)
With demand recovering faster than expected in 2021, hotel companies put the COVID blues behind them and hit the ground running with their expansion plans, resulting in a year-over-year increase of over 24% in brand signings by keys. During the year, 135 new hotels with 12,359 keys entered the branded hotel market. Meanwhile, 58 hotels with 3,108 keys were rebranded during the year, a trend similar to that seen prior to the pandemic.
International vs Domestic Brands
With an average key count of 65 keys during the year, domestic hotel operators continued to sign more properties (~78% of the total signings by properties) than their international peers. Meanwhile, international hotel operators continued with their strategy to sign larger properties, resulting in an average key count of 133 keys in 2021.
By Contract Type
Management contracts remain dominant, accounting for 79% of the total signings by keys in 2021. Franchising is gradually strengthening foothold, accounting for approximately 16% of the signings by keys in 2021, maintaining its increased share from the previous year. Leasing and other forms of contract remain the lesser preferred mode of signings in India.
Top 5 Operators
By Development Status
Brownfield signings have grown in popularity in recent years, accounting for 48% of the keys signed in 2021, as they are less risky and have a higher likelihood of completion than greenfield. The impact of COVID has also slowed down greenfield development. As a result, the share of greenfield keys signed has declined from 39% in 2020 to 32% in 2021. Conversion/rebranding, meanwhile, accounted for 20% of the keys signed during the year. Brownfield projects also took the lead in terms of number of properties signed in 2021, accounting for 47% of all signings by properties, while greenfield properties accounted for 23% of total signings by properties. Hotel rebranding or conversion is on the rise, accounting for 30% of total signings by hotels in 2021.
Top Destinations (Ranking by State)
By Tier Classification
As hotel operators made stronger inroads into the country’s smallest towns, Tier 3 and 4 cities accounted for 51% of the total signings by properties in 2021. In contrast to the previous year, in 2021,the share of the Tier 1 cities in terms of signings by keys inched closer to pre-COVID levels.
By Market Positioning
The Midscale segment remains the market leader in terms of number of hotels signed in 2021 with over 55% signed properties. With changing demographics and consumer preferences, the Luxury segment is regaining the mindshare of hoteliers.
In terms of keys, Midscale segment is the most preferred segment in the country, accounting for 44% of the total signings by keys in 2021, followed by Upscale (32% of total signings), Luxury (13% of total signings) and Economy (11% of total signings).
By Market Segment
Commercial destinations continued to see the maximum signings by keys (50% of total signings). However, due to the lessons learned during the pandemic, hotel companies looked at increasing their distribution in leisure markets, resulting in significant growth in leisure sector development. As a result, nearly 42% of the total hotel signings by keys in 2021 were in leisure destinations in the country. Leisure destinations led the way in terms of signings by properties, accounting for 49% of the signings, followed by commercial (44% of signings) and mixed destinations (7% of signings).
Brand Openings (2019-2021)
In 2021, domestic leisure and business travel demand strengthened dramatically, encouraging hotel operators to proceed with their planned openings; 8,488 branded keys opened their doors to guests, up 95% from the previous year and only 9% lower than 2019 levels. However, due to the erratic nature of travel demand because of the evolving COVID situation, some hotel operators have chosen a partial opening of their properties. By opening 76% of the properties during the year, domestic brands maintained their lead over their international counterparts.
2021 Hotel Investments
Hotel investments in India have not picked up significantly post-COVID, unlike in mature hotel markets where transaction activity has been regaining ground. The sector has not yet witnessed a flurry of distress transactions as was expected as a likely outcome of the pandemic. Although there are signs that investors are assessing hotel assets, buyer interest in India continues to be limited as yields remain stressed and borrowing for the sector has become even more challenging than before. Asset valuations have been challenging in a near zero cash flow environment and the spread between the ask and the offer prices has been widening. The buyers discounting on valuation on account of the
COVID impact to the sector is not finding acceptance with the sellers.
Performance of Key Hotel Stocks
Hotel stocks were once again in focus in 2021, thanks to the relaxation of COVID-restrictions, gradual reopening of the economy, the increasing vaccination rate, and the robust rebound in demand, especially post the second wave. During the year, most hotel stock prices increased by 10-45%, with some even surpassing their pre COVID highs.
