India Hotels Outlook - ANAROCK

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hvs.comanarock.comFollow us onHVS India & South AsiaIndia Hotels OutlookImpact of COVID-19India Hotels Outlook: Impact of COVID-19 1

The hotel growth cycle abruptly ended after 5 yearsof consecutive RevPAR growthThe markets were set on a path to recover the grounds lost due to the past disruptive events and supply overhang as the year2020 started on a positive note with strong performances in the first two months. The onset of COVID-19 and the subsequenttravel restrictions and nation-wide lockdown, however, has had an unprecedented impact on the 0191H2020Source: STRIndia Hotels Outlook: Impact of COVID-19 2

Unprecedented downturn – Indian hospitality sectorOrganisedSemi OrganisedUnorganisedINR 40,309 CrINR 8,379 CrINR 41,126 CrREVENUE LOSS31.6percentage pointsOCCUPANCY57.8%REVPAREstimated Total Revenue 2019Estimated Total Revenue Loss 2020INR 1,58,113 CrINR 89,813 CrNote: HVS Estimate as on April 2020Source: HVS ResearchIndia Hotels Outlook: Impact of COVID-19 3

Where do we go from here?India Hotels Outlook: Impact of COVID-19 4

Prior cycles did not witness severe erosionin demand from disruptive eventsImmediately post 2001 and 2008 crises, demand grew at strong rates following short term impacts.Demand in the 2010 decade grew at 5.3% CAGR as against 10.8% CAGR in the 2000 decade.Demand Change%30.0%CAGR 2000-2009: 10.8%CAGR 2010-2019: 5.3%2000 DECADE2010 01-15.0%2000Change in Demand20.0%ADRPick-upSource: HVS Research & STRINCREASEDECREASEIndia Hotels Outlook: Impact of COVID-19 5

Prior cycles supply growth has varied witha significant slowdown in the current decadeSupply growth in the 2010 decade has been substantially lower at 51% as compared to a 158% growth in inventory in the 2000decade.30.0%CAGR 2000-2009: 10.3%CAGR 2010-2019: 4.1%25.0%2000 DECADE2010 e in SupplySupply Change%ADRPick-upSource: HVS Research & STRINCREASEIndia Hotels Outlook: Impact of COVID-19 6

Supply profile of major markets has transformedPune, followed by Bengaluru and Hyderabad, the tech epitomes of India, have witnessed the fastest growth in supply over thelast two decades. Bengaluru has risen from being the 5th largest market in the country to the 2nd biggest.2000350006.3Times3000020195.714.3TimesNo. of 5000Times7.3Times1000050000MumbaiDelhi NCRBengaluruChennaiGoaHyderabadKolkataPuneSource: HVS Research & STRIndia Hotels Outlook: Impact of COVID-19 7

Supply profile of major Asian marketsIndia, however, continues to have the lowest proportion of branded hotel rooms compared with major Asian hotel markets.Shanghai and Beijing are nearly 10 times the size of our major hotel markets.300,000269,269250,591No. of Hotel 4772,54161,73050,00029,49924,66725,842Delhi NCR*MumbaiBengaluruSingaporeJakartaHong KongTokyoShanghaiBeijingBangkokSource: HVS Research & STRIndia Hotels Outlook: Impact of COVID-19 8

Prior cycles Occupancy changeOccupancy growth rates in the 2010 decade has been lower than the 2000 decade on account of supply absorption.Since 2013, occupancy growth has recovered much of the lost ground until it was hit by the COVID-19 impact.25.0%Average Growth 2000-2009: 0.6%Average Growth 2010-2019: 0.7%2000 DECADE2010 DECADEChange in 019ADRPick-upSource: HVS Research & STRINCREASEDECREASEIndia Hotels Outlook: Impact of COVID-19 9

Prior cycles Average Rate changeThe industry witnessed its largest rate growth in the 2000 decade @ 6.3% CAGR as the country’s economy opened postliberalization and demand outstripped supply by a significant margin. Apart from 2017, average rate growth, post the GFC crisis,has been limited in the 2010 decade growing at a CAGR of 1.7%.CAGR 2000-2009: 6.3%100.0%CAGR 2010-2019: 1.7%2000 DECADE2010 DECADERate 19ADRPick-upSource: HVS Research & STRINCREASEDECREASEIndia Hotels Outlook: Impact of COVID-19 10

Outlook for demandCORPORATEMICELEISURECorporates are expected to putrestrictions on non-essential employeetravel. Even for the essential employeetravel, allowance limits are likely to bereduced.The number of International CorporateMICE travelers will be significantlyreduced.Domestic tourists will be major demanddrivers. ‘Revenge’ travel witnessed inChina could foster among Indians too.A large number of weddings planned atinternational destinations haverelocated to domestic destinations. Thesize of the weddings will be reduced.The 25 Mn outbound Indian travelerswill also be an attractive segment forthe leisure market.Senior Management travel also expectedto reduce in the short term.Business Midscale & Economy Hotels to recover faster than Luxury & Upscale counterparts.Leisure Luxury & Upscale Hotels to recover quicker than the Economy & Midscale counterparts.India Hotels Outlook: Impact of COVID-19 11

Outlook for Supply growthAs of May 2020, supply was forecast to increase at a CAGR of 2.8% during the 2020-2024 period. Given the recent events, supplygrowth is now expected to be lower, and at a slower pace, than previously anticipated.Under-constructionprojects may facedelays on account oflabour shortages andissues pertaining tovendors and supplychain.Muted marketconditions will likelylead to delayedopenings; someprojects may be onhold pendingrecovery.Financing challengeson account ofnegative sentimentfor the sector is likelyto delay projects.Changes in marketconditions mayrender proposedprojects infeasible; asa result, someprojects may bepostponed orcanceled.Some properties mayclose on account offinancial stress andnot reopen for anextended period oftime, resulting innegative supplygrowth.Some properties are likely to be repurposed to other asset classes such as Hospital, Student Housing,and Co-Living.India Hotels Outlook: Impact of COVID-19 12

We anticipate Occupancy & ADR to reach pre-COVID levelsby 2022 & 2023 respectivelyThe following forecasts for the India hotels industry reflects the current outlook of market participants, assuming recovery fromCOVID-19 begins in the second half of 2020.Average RateRevPAR2020 Change %Occupancy 6,000 5,00080.0%65.4%66.2%65.5%67.0%68.0%57.5% 4,00070.0%-19.1%60.0%ADR50.0%34.5% 3,00040.0%30.0% 2,000-31.6percentage pointsOccupancy 4,384 6,448 4,114 6,141 3,794 5,793 2,782 4,834 1,675 4,850 3,967 5,997 3,812 1,000 5,83020.0% 2%5.3%3.6%2.6%1.2%10.0%-57.8%0.0%RevPARSource: HVS ResearchIndia Hotels Outlook: Impact of COVID-19 13

Current forecasts in a historical context‘Years to recover’ reflects the time from the event year to levels immediately prior to the major event. Both Occupancy and ADRwill recover much quicker in this cycle due to limited supply growth subject to vaccine being in place not later than 2021.Years to Recover2COVID-19 (2020) #32Never Recovered2GFC (2008)Never RecoveredNever Recovered09/11 (2001)31Occupancy# HVS Projections14ADRRevPARSource: HVS ResearchIndia Hotels Outlook: Impact of COVID-19 14

How will markets & hotels be affected?Less VulnerableMore Vulnerable Full-service hotels, dependent ongroup business Gateway markets that depend oninternational travel 15“Fly to” markets that depend on airtravelSecondary and tertiary markets areexpected to hold up better.Gateway and the top 10 metromarkets will witness short termvolatility.Independent non-affiliated properties Upscale & Luxury Hotels which haveover 50% international business International leisure destinations withhigh FIT or GIT movementMotorable Leisure markets couldsee a quicker rebound. Hotels that primarily rely on transientsegments Economy and midscale business hotels Suburban, small metro town properties “Drive-to” resorts Extended-stay hotels Drive-to markets, which can beexpected to recover faster than thosedependent on air travel Properties affiliated with strong brandsIndia Hotels Outlook: Impact of COVID-19 15

Final thoughts1This cycle could be unique in terms of therapid and dramatic decline of demand, likenever seen before, but there could be somesimilarities to other cycles.4We anticipate Occupancy and ADR to reachPre-COVID levels by 2022 and 2023respectively, with supply growth expected toremain dormant.2Supply growth is expected to slowsignificantly, as new or under constructionsprojects are delayed or abandoned andseveral highly leveraged assets are shutdown.5Upscale/Luxury Leisure and BrandedEconomy/Mid-market business hotels areexpected to lead the recovery growth in thesector.3The pace of immediate demand growth iscorelated to the level of stimulus infused bythe government to revive growth, besides theavailability of a cure and vaccine6The transaction market will witness highactivity due to likely softening in values andincreased availability of stressed assets.India Hotels Outlook: Impact of COVID-19 16

About HVSSuperior Results Through Unrivaled HospitalityIntelligence. Everywhere.HVS has been supporting the hospitality industryin India and around the world for over 40 years.Our senior staff represents a collective 300 years of experience advising our industry,including through multiple prior cycles andevents.Our expertise covers the full range of hospitalityassets and spans the full lifecycle of a hotel,including services that support developers,owners, operators, lenders, and investors.This knowledge and experience is available tosupport you as you navigate these challengingtimes. We are fully functional on a remote basis,so even though we are not currently traveling, ourstaff can access the full resources of HVS on yourbehalf.Let us know how we can assist you.PLANNINGSite SelectionMarket StudyInvestment SearchProduct RecommendationFinancial ProjectionsFinancial Feasibility AnalysisEconomic Impact AnalysisArchitectural Concept DesignConstruction Costs EstimatesDISPOSITIONExit StrategyBrokerage & AdvisoryAdaptive Reuse AnalysisShared Ownership AnalysisPricing AnalysisACQUISITION & DEVELOPMENTValuation & Pricing GuidanceAppraisal for FinancingDebt & Equity FinancingDue Diligence CoordinationBrand Selection & Contract NegotiationsOperator Selection & Contract NegotiationsInterior Design & Project ManagementExecutive SearchPre-Opening OversightOWNERSHIP & OPERATIONAsset ManagementManagement Agreement Analysis & NegotiationHotel ManagementAppraisal for RefinancingOperation Performance AnalysisRepositioning Study & ValuationRepositioning Design & BudgetingTimeshare Conversion ReviewCapital Improvement FinancingIndia Hotels Outlook: Impact of COVID-19 17

Connect with us!For any queries, please reach out toOur ServicesMandeep S. Lamba (MRICS)President (South Asia)mlamba@hvs.com 91 981 130 6161Brokerage & Transaction AdvisoryConsulting & ValuationAsset ManagementExecutive SearchAkash DattaSenior Vice President – Consulting & Valuationadatta@hvs.com 91 989 951 7404World’s Best-known Hospitality Advisory Firm with a Global PresenceHVS ANAROCK Hotel Advisory Services Pvt. Ltd.GURUGRAM50 350 6,000 60,000 AssignmentsConcluded11Countries05ContinentsLevel 7, Tower B, Building No. 9DLF Cyber City, Phase III, Gurugram 122 002 91 124 488 5580MUMBAI1002, 10th Floor, B Wing, ONE BKC, Plot No. C-66, G BlockBandra Kurla Complex, Bandra (E), Mumbai 400 051 91 22 4293 4293 2020 HVS ANAROCK Hotel Advisory Services Pvt. Ltd. All rights reserved.Disclaimer: All information in this report is provided solely for reference purposes. HVS ANAROCK makes no statement, representation, warranty or guaranteeas to the accuracy, reliability or timeliness of the information provided. No part of this report may be reproduced, distributed, or transmitted in any form or byany means, including photocopying, recording, or other electronic or mechanical methods without the expressed written consent of the organisation.Follow us onHVS India & South AsiaIndia Hotels Outlook: Impact of COVID-19 18

Upscale & Luxury Hotels which have over 50% international business International leisure destinations with high FIT or GIT movement Hotels that primarily rely on transient segments Economy and midscale business hotels Suburban, small metro town properties "Drive-to" resorts Extended-stay hotels Drive-to .

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