By Nirupa Shankar
THE BANGALORE market less than 10 years ago had only 2500 branded rooms. To give you a clearer picture, one hotel in Vegas, the MGM Grand with 3000 rooms, had more rooms than the entire city of Bangalore.
Currently, we have between 9,500 to 10,000 branded rooms in the city. So it’s quadrupled in the last decade. Demand for occupancy has nearly kept up with this growth, the drop is merely between 2 and 3 per cent. The city averages occupancy of around 60 per cent, which is around the national average. What has really been hit are the ARRs. I remembering interning at the Leela Palace in Bangalore, during the glory days of charging Rs 20000 a night. Now the rates have halved.
If you look at the next five years, I think room numbers will go up another 5,000 odd units. Everybody talks about hospitality being in a slump. Then, why is everybody still building? I think the reason people are building is that they are expecting a massive upsurge in demand thanks to domestic tourism, in another 5 to 8 years, I think sometime post 2020 or 2022. It seems now is the right time to build. I seriously believe that the slump is when you should build, so that you’re ready for the good times.
I think Brigade is one of the few happy owners that operators like to interact with, because we were extremely careful about the capital investment that goes into the hotel. You can go really wrong while building the hotel by over specking the hotel and not controlling cost. No matter what you put into your hotel, the market will tell you what you charge and what you can't. A big brand may be able to charge a $1000 abroad but here in Bangalore, that is certainly not the case.
Personally, when we look at a feasibility study, the thumb rule that works is very simple. Whatever your expected room rate is, your cost per key should be a thousand times that. Suppose your cost per key is around Rs 60,00,000, you should expect a rate of Rs 6000. If you follow that thumb rule by and large you will be safe. This has really helped us keep our costs in mind.
If I am entering a market, say Kochi, I know that the average room rate is around Rs 3800 to Rs 5000 in the market, ideally you should have not paid more than Rs 50 lakhs per room. But that's not the case. It is usually double. But then, you come to the different reasons people build hotels., when costs sometimes seem justifiable.
If you follow the rule though, it will help you service your debt, which is the most important thing because you want the hotel to be self-sufficient. Granted in hotels, you don't make money, but for seven years or in the first ten years you will recover the cost.
Operators will tell you getting a super deluxe brand can cost you Rs 1.5 crores to Rs 1.25 crores per key, but in which market are you going to get Rs 15000 a room night? You guarantee me Rs 15,000, and I will spend Rs 1.5 crore a key. We have to push back now and that is what a lot of owners are doing, pushing back on the specs.
As real estate developers, our current portfolio of two existing hotels (The Sheraton and the Grande Mercure at Koromangala) are doing very well. We have eight more hotels under construction.
For a five star deluxe property you pay Rs 1 crore and above per key; for a five star its between Rs 80 lakh and a crore; 4 star should cost around Rs 60 to 80 lakh while a three star should not be more than Rs 35 to 45 lakhs’and I haven’t even factored in the cost of land.
Land cost is a different beast. Typically, hotels do better when the land is on a long lease. Land is important part for developers. You have to source it, make sure its not too expensive’some experts say the value should not be more than 20 per cent of the cost, but the lower the better.
Brigade as a whole has 8 ongoing hospitality projects. Four are under construction across South India. This year we will be opening two hotels. The Holiday Inn in Chennai and the Grand Mercure in Mysore. Another mid-market branded hotel is planned for Mysore and three mid-market hotels in Bangalore. We also have a five star property coming up in Kochi, right next to the World Trade Centre.
The Author is Director, Brigade Hospitality. As told to Bikramjit Ray.
THE BANGALORE market less than 10 years ago had only 2500 branded rooms. To give you a clearer picture, one hotel in Vegas, the MGM Grand with 3000 rooms, had more rooms than the entire city of Bangalore.
Currently, we have between 9,500 to 10,000 branded rooms in the city. So it’s quadrupled in the last decade. Demand for occupancy has nearly kept up with this growth, the drop is merely between 2 and 3 per cent. The city averages occupancy of around 60 per cent, which is around the national average. What has really been hit are the ARRs. I remembering interning at the Leela Palace in Bangalore, during the glory days of charging Rs 20000 a night. Now the rates have halved.
If you look at the next five years, I think room numbers will go up another 5,000 odd units. Everybody talks about hospitality being in a slump. Then, why is everybody still building? I think the reason people are building is that they are expecting a massive upsurge in demand thanks to domestic tourism, in another 5 to 8 years, I think sometime post 2020 or 2022. It seems now is the right time to build. I seriously believe that the slump is when you should build, so that you’re ready for the good times.
I think Brigade is one of the few happy owners that operators like to interact with, because we were extremely careful about the capital investment that goes into the hotel. You can go really wrong while building the hotel by over specking the hotel and not controlling cost. No matter what you put into your hotel, the market will tell you what you charge and what you can't. A big brand may be able to charge a $1000 abroad but here in Bangalore, that is certainly not the case.
Personally, when we look at a feasibility study, the thumb rule that works is very simple. Whatever your expected room rate is, your cost per key should be a thousand times that. Suppose your cost per key is around Rs 60,00,000, you should expect a rate of Rs 6000. If you follow that thumb rule by and large you will be safe. This has really helped us keep our costs in mind.
If I am entering a market, say Kochi, I know that the average room rate is around Rs 3800 to Rs 5000 in the market, ideally you should have not paid more than Rs 50 lakhs per room. But that's not the case. It is usually double. But then, you come to the different reasons people build hotels., when costs sometimes seem justifiable.
If you follow the rule though, it will help you service your debt, which is the most important thing because you want the hotel to be self-sufficient. Granted in hotels, you don't make money, but for seven years or in the first ten years you will recover the cost.
Operators will tell you getting a super deluxe brand can cost you Rs 1.5 crores to Rs 1.25 crores per key, but in which market are you going to get Rs 15000 a room night? You guarantee me Rs 15,000, and I will spend Rs 1.5 crore a key. We have to push back now and that is what a lot of owners are doing, pushing back on the specs.
As real estate developers, our current portfolio of two existing hotels (The Sheraton and the Grande Mercure at Koromangala) are doing very well. We have eight more hotels under construction.
For a five star deluxe property you pay Rs 1 crore and above per key; for a five star its between Rs 80 lakh and a crore; 4 star should cost around Rs 60 to 80 lakh while a three star should not be more than Rs 35 to 45 lakhs’and I haven’t even factored in the cost of land.
Land cost is a different beast. Typically, hotels do better when the land is on a long lease. Land is important part for developers. You have to source it, make sure its not too expensive’some experts say the value should not be more than 20 per cent of the cost, but the lower the better.
Brigade as a whole has 8 ongoing hospitality projects. Four are under construction across South India. This year we will be opening two hotels. The Holiday Inn in Chennai and the Grand Mercure in Mysore. Another mid-market branded hotel is planned for Mysore and three mid-market hotels in Bangalore. We also have a five star property coming up in Kochi, right next to the World Trade Centre.
The Author is Director, Brigade Hospitality. As told to Bikramjit Ray.
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