Hotels, hospitality sectors severely impacted by COVID-19 pandemic: JLL

The hotels and hospitality sector in India has declined sharply in the first quarter of 2020, as the COVID-19 outbreak impacts various segments of the sector, according to global real estate consultant JLL.

Coming off a high performance base in 2019, the COVID-19 outbreak and the containment measures introduced by the government have resulted in a severe drop in foreign and domestic travel, across both the tourism and business traveller segments, the report 'India Hospitality Industry Review 2019' has said.

"In the third week of March 2020, at an all-India level, the hotels sector witnessed a decline of more than 65 per cent in occupancy levels as compared to the same period of the previous year," it added.

As travel restrictions around the world intensified further, second and third quarters of 2020 are likely to be similarly impacted, it added.

At least 30 per cent of hotel and hospitality industry revenue could be impacted if situation doesn't improve by the end of June 2020. With more than 60 per cent of organised hotels in India already shut and several others operational with single digit occupancies, a recovery will be gradual, the report said.

Industry estimates indicate that in India, branded and organised hotels annual revenue is Rs 38,000 crore, it added.

"As the sector navigates turbulent times through the pandemic, growth and development of hotels in India is also likely to be impacted in the next two years. Any dry powder that is available today will focus more on buying operating assets rather than building new ones," JLL India CEO and Country Head Ramesh Nair said.

The strong performance of the office sector was the key to robust hotel market performance across the top 7 business cities of India, the report said.

"There are several macro factors that play favorably to India's hotel and hospitality industry. First and foremost, the massive domestic sector, which has also become travel savvy over the years, will likely drive the rebound as travelers extend their average length of stay at a certain destination," JLL Hotels & Hospitality Group MD Jaideep Dang said.

Secondly, India may get an increased share of manufacturing and logistics business that may bring back business travelers to the country in the medium term, he added.

Focus on development could shift towards Tier 1 cities, which are fundamentally stronger business-driven markets, the report said.

On debt side, new hotel development will be impacted as there will be limited lender appetite, particularly in more volatile resort markets. Investors led by private equity funds will be looking out for stressed assets as the working capital pain and reduced revenues will impact yields for existing hotel owners, it added.

"2020 started with a strong deal pipeline estimated at about USD 1 billion worth of tradeable assets. Investment action will likely get deferred as the sector rebuilds itself after containment of COVID-19, however, we estimate that more assets may fall in the ring for sale in the latter half of the year, the report said.

Growth and development is likely to slow down in the next two years. Projects under development will likely get delayed and raising development finance will also become more challenging, it added.

Depending upon an early containment of the pandemic, green shoots on transaction activity will likely appear towards third quarter of 2020, the report said.