Whitefield most hit by hotel room glut

The rapid growth of the Whitefield area in Bangalore, home to some of the biggest IT companies, made it an attractive investment spot for mid-segment hotels (3 and 4 star). However, in the past few months, hotel players are not so optimistic. They believe it has become the most uneven market in Bangalore owing to an oversupply.

“To set up a hotel in the Whitefield area is not a cakewalk,” says Saurabh Gupta, general manager, Premier Inn Bangalore, which has just set up a 105-room three star hotel in Whitefield. Premier Inn is part of the UK-based Whitbread PLC chain of hotels. “Pricing and location will be major differentiators in the present market,” says Gupta whose hotel has been set up in Whitefield for an investment of Rs 25 crore.

 

Upcoming room supply expected around 2011 in Bangalore comprises of approximately 10,000 -10,500 hotel rooms across 44 hotels. A Cushman & Wakefield report states that Whitefield, off CBD locations and the North Bangalore stretch are likely to witness most of the upcoming supply.

Industry estimates that there are around 1,000 rooms by organised hotel players across all segments in the Whitefield area.

Going by the demand in 2007, many mid-segment hotels announced their plans to set up their properties in the area. Close to 600 rooms across all categories are expected to come up in Whitefield in the next 18 months, of which over 300 rooms are expected to comprise of the mid-segment.

Mid segment hotels, set up in Whitefield depend on business from junior and middle-level executives travelling to the IT companies in the area. However, the recession has cut travel budgets, eventually affecting occupancy rates in Whitefield hotels. In 2007, the occupancy rate in Whitefield for mid-segment hotels was around 80 per cent backed by the booming IT sector which, in the last one year, has dipped over 50 per cent.

Berggruen Hotels, a venture backed by Berggruen Holdings Inc, New York, which runs the ‘Keys Hotels’ for mid-segment and budget hotels says, oversupply has been an issue at a time when the market is depressed.

“The business in Whitefield has become a value for money game. With an average price point of Rs 2,500 to Rs 3,000 per room per night, mid-segment hotels are trying their best to attract junior and middle level executives,” says Sanjay Sethi, CMD, Berggruen Hotels. The company is building a 150-room Keys hotel in Whitefield. While demand is expected to grow 10-12 per cent, supply of rooms in the area is growing 30-40 per cent, he adds.

Most players are of the opinion that despite the poor demand, prices will not see much correction. However new players who are just setting up shop are planning to open with attractive ARRs. Premier Inn, for instance has begun operations with an introductory rate of Rs 2,600 per room per night.

Ajay Bakaya, executive director of Sarovar Hotels & Resorts which runs the three-star 102 room Radha Hometel in Whitefield says that the over-supply is expected to continue till next year.

“The IT market has been down off-late and looks like it has just started picking up. Despite the present scenario, the market will gradually stabilise since demand continues to keep growing especially in the mid-segment,” adds Bakaya.