Current rates, land cost discouraging supply; opportunity for ARRs to go up, says Ajay Bakaya 

Ajay Bakaya, Managing Director, Sarovar Hotels, shared his views on a range of issues in a free-wheeling interview. Current room rates and exorbitant land costs were deterring investments in new projects, he said, adding that it was also an opportunity for average room rates to up. Excerpts from an exclusive interaction:

With Portico, Premiere and Hometel as three segments, where will the focus be? Where is the growth happening? 

The focus area is uniform, but the highest numbers will always be that of Portico. It’s simple. The cost of investment is more reasonable than the others. It is more flexible as a brand and we can reflag another brand into a Portico.

Premiere is more expensive to build and Hometel does not necessarily satisfy every owner’s ego. Although, Hometel is the most efficient in generating profits and return on investments.

Do you see a shift in the behaviour of owners as maturity-levels increase? Perhaps, a few years down the line? 

Not really, no. Unless somebody wants to develop a multi-hotel deal and prefers the Hometel model. Portico would be our most flexible brand. It is not too rigid. We are very clear with what we want in the Premiere segment, and we won’t make any exceptions. We are equally clear on the design concept in the Hometel segment. So, those two offer less flexibility than the Portico brand. Portico, therefore, would be our brand with the highest number of hotels. We, currently, have 42 hotels in the Portico segment.

Some industry insiders believe that mixed-use of infrastructure could help negate the impact of high real estate costs. The matter assumes more significance for budget and mid-segment hotels. Your thoughts.

Yes, definitely. It is the right answer whether it is done by state authorities or privately. It benefits every segment, not only budget and mid-segment. Real estate cost is very high in a market like Japan and all luxury hotel projects are a part of mixed-use development. It simply makes more sense. Retail and commercial establishments can use the first few floors. Hotels anyways want to be higher up.

There is an emerging consensus that supply has stabilised and room rates must increase now. Do you see that happening?

Firstly, when you say that supply has stabilised, the supply that was committed over the last nine years has largely come through. The supply pipeline, therefore, is smaller. We would still need a lot more supply but it does not make sense for owners to invest and build hotels at current average room rates and real estate costs. Is this an opportunity for room rates to go up? Of course, it is. Rates have been going up in the past two seasons and I expect them to go further up in this season.

Do you see it happening for all segments?

Yes, absolutely.

Is it in single-digits or double-digits? 

It is in the single-digit. 

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