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Kolkata | Bengal means Business
K olkata, once the capital of British India, is currently in the process of re-inventing itself. Years of political flux held back both the city and its state in terms of commercial and infrastructural development; however, over the last decade, Kolkata has witnessed gradual progress, slowly driving it in the right direction and offering it an unconventional advantage over its counterparts. The city’s yet untapped potential presents it with the opportunity to establish itself as an efficiently planned hub for commerce, events and tourism.
Connectivity Kolkata possesses several attributes that can contribute to its potential success going forward, and connectivity is one of them. In addition to being India’s gateway to the East and Northeast, the city is generally well-connected by air, rail and road domestically. Furthermore, Netaji Subhash Chandra Bose International Airport, which is the fifth-busiest in the country, links Kolkata to Bangladesh, Bhutan, China and Southeast Asia.
Key Demand Areas for Hotel Accommodation The ongoing northeastern expansion of the city is transforming its commercial and hospitality landscape. Figure 1 sheds some light on the growth of Kolkata, while Figure 2 highlights the key demand generating areas for hotel accommodation in the city.
Figure 1: City Evolution
Areas: Hastings, Esplanade, Park Street, AJC Bose Road, Strand Road
Areas: Alipur, Lansdowne, Tollygunj, Ballygunj
Areas: Salt Lake City, EM Bypass
Areas: New Town, Rajarhat
Figure 2: Key Demand Generating Areas
Traditionally, hotels in and around the central business district (CBD) served room night demand emanating from the area as well as from Southwestern Industrial Corridor, EM Bypass and Salt Lake City. The Oberoi Grand, The Park Hotel, Taj Bengal, Kenilworth Hotel and Hotel Hindustan International were the first five major hotels to establish the organised hotel industry of Kolkata. Thereafter, it took nearly 20 years for the city to witness the opening of another major hotel—the Hyatt Regency, which entered the market in 2002. Since then, the city has recorded steady growth in hotel supply. In fact, between 2014 and 2017, Kolkata’s hotel room supply doubled, and looking ahead, we expect it to witness an additional of 2,000 rooms over the next five years.
In line with the city’s expansion, hotels have now been developed across Kolkata, with specific focus on the northeast. Rajarhat and New Town are not only the most recent commercial hubs, but also house the newest hotels in the market. Moreover, Kolkata International Convention Centre and most of the upcoming hotels in the city are also planned here. Consequently, the city’s hotel industry is seeing the formation of self-sustaining micro-markets in terms of supply and demand, the two major ones being City Hotels and Eastern-Periphery (EP) Hotels.
Figure 3: Kolkata Hotel Market Performance
The city witnessed its first positive RevPAR growth of approximately 3% in four years in 2017/18, registering an estimated occupancy of 72.0 % and an average rate of about INR 6,100. Figure 3 summarises the marketwide hotel performance over the last four years.
More specifically, the two micro-markets of the city demonstrated varying operating performance owing to their unique characteristics of supply and demand. City hotels major demand segments are commercial and leisure whereas major demand segments for hotels located alongside Eastern-Periphery are commercial and MICE. The hotels located in CBD witnessed a higher ADR than the hotels located in Salt Lake City, Rajarhat and E.M Bypass.
Existing Supply: Most of the supply in both regions is presently positioned in the Midmarket-Upper Midmarket space constituting approximately 46% of the hotel inventory in the City and 55% in Eastern-Periphery (EP). The difference lies in the Luxury space; while luxury hotels account for almost one-third of the existing supply in the City, they just represent 13% of the EP hotel supply. The Upscale, Upper Upscale and Budget segments constitute the remainder of supply in both areas, with most branded hotels positioned in the Upscale-Upper Upscale segment.
Demand: Kolkata’s demand generators for the Commercial (and by extension the Extended-Stay) segment are currently divided geographically between the two hotel micro-markets. The City hotels benefit from banks, financial services, stock exchange, consulates, PSUs and NGOs located there, whereas EP hotels capture demand generated from IT/ITeS, financial services, medical and telecommunication industries. Moreover, Airline demand is restricted primarily to the EP hotels because of proximity to the airport, while Leisure demand is concentrated within the City hotels as Kolkata’s major tourist attractions are in the vicinity. The fast-growing MICE demand, on the other hand, is bifurcated between the two regions with EP hotels capturing a greater share, as they have larger meeting spaces to cater to events, weddings and conferences. As a side note, F&B demand is strong throughout the city, as locals thoroughly enjoy eating out. There is, however, intense competition between hotels and stand-alone outlets, as the perceived value-for-money is higher in the latter.
Historical Operating Performance: The resultant impact of supply and demand can be seen in the operating performance of the hotels in each region. CBD hotels registered an estimated 10% higher occupancy than the EP hotels. EP hotels have relatively higher focus on the volume-driven MICE segment. Expectedly, City hotels commanded on an average an 8% premium on average rate over EP hotels in 2017/18. The presence of Luxury hotels, in combination with a focus on relatively high-paying Commercial and Leisure demand, aided this performance. EP hotels also saw an influx in demand due to FIFA Under-17 World Cup.
Hotelivate’s Outlook for Kolkata Despite significant additional supply in the last two years, hotel market performance in Kolkata improved both on occupancy and average rate fronts. As the city progresses economically, and with infrastructure development underway, demand in the market can be seen improving, bolstering occupancies. Additionally, the formation of micro-markets is aiding the supply-demand equilibrium in Kolkata, and is quite likely a reason behind the city’s renewed ability to sustain additional hotels entering the market.
Having said that, we urge keen developers to invest wisely, since each micro-market supports different product offerings and price points. We would also like to add that although Kolkata is viewed as a price-sensitive market that is unable to command room rates in line with other metropolitan cities in India, the hotel business of the city is by no means unprofitable.
Moving forward, the future of demand in the city appears favourable, with the Kolkata International Convention Centre and other developments anticipated to boost the generation of room nights. We, thus, remain positive that Kolkata will embrace its newfound direction in the ongoing story of its evolution.