Marriott International Inc. (MAR), the largest U.S. hotel chain, has inked a preliminary joint venture (JV) agreement with SAMHI Hotels Pvt Ltd to debut Fairfield by Marriott in India. SAMHI is a hotel investment and development company based in New Delhi, India.
The venture will cater to the growing Indian business traveler segment. The formation of the JV is expected to close in the second quarter of 2011. With local market knowledge and a proven track record in the hospitality sector, SAMHI Hotels is expected to prove to be a strategic partner.
Upon completion, the project will feature approximately 15 moderate-tier hotels by 2015 in markets including Bangalore, Chennai and Hyderabad. Marriott plans to expand its presence in India by opening 100 hotels over the next five years. The hotel giant launched its first property in the country in 1999 and currently manages 12 hotels over there in India.
Why India?
Since the U.S. market is somewhat saturated, hoteliers are exploring foreign opportunities. The emerging markets offer greater potential based on their current higher pace of economic growth. The Asia-Pacific region showed a stellar performance during 2010. It was the only region to report double-digit revenue per available room (RevPAR) growth last year. The key growth markets in Asia-Pacific were China and India.
According to Marriott, the middle income population is India is growing, presently accounting for more than 200 million people. This fraction of the population has an inclination to spend on travel and leisure. Additionally, India is expected to experience a meaningful growth in gross domestic product (GDP) within the next few years.
India also has a compelling investment proposition with its rising importance as a global business hub, where as the demand for moderate-tier as well as upscale branded hotels will considerably outpace the supply for next three to four years. Moreover, the built-cost to operating returns is also favorable for these western hoteliers. All these factors testify Marriott’s second largest Asian hotel development pipeline in India.
Others Interested
Starwood Hotels & Resorts Worldwide Inc. (HOT), another major hotel company, also remains on track to beef up its Indian portfolio. The company recently announced that it will open more four and five star hotels in India than any other hotel company, opening another seven properties in 2011 and taking the total count to 37.
Presently, India is Starwood’s fourth largest market, and in terms of future development, the country stands next to its principal pipeline holder, China. Going forward, Starwood is set to operate 50 hotels in India by the end of 2012 and by 2015, it expects to have 100 hotels open or under development.
Yet another hotel major, InterContinental Hotels Group (IHG) also entered into a joint venture with Duet India Hotels Group to develop 19 new Holiday Inn Express hotels across India by 2016. InterContinental’s current Indian development pipeline consists of over 10,000 rooms (46 hotels) and has plans to have a strong 150-hotel presence by 2020 in all Indian business and leisure hubs.
Hyatt Hotels Corporation (H) alsoannounced management contracts for nine new hotels in India. This would bring the total number of properties now under construction or development in India to 38.
Conclusion
According to a study by Knight Frank India, a real estate and property service firm, the Indian hotel room market for 10 metros will increase at a 17% compounded annual growth rate (CAGR) between 2010 and 2013. In terms of the number of rooms sought per day, the sector is estimated to grow at a CAGR of 10.3%.
The hotels and lodging industry seems to be back in demand, thanks to the gradual global economic recovery. Smith Travel Research, the leading provider of market data to the world’s hotel industry, sees a 30% growth in the number of branded hotel rooms slated to open by 2015 from the current level.
In our opinion, this is the right time for the sector to tap the Indian market before the rate of growth decelerates and the gap between emerging and developed markets narrows down.
HYATT HOTELS CP (H): Free Stock Analysis Report
STARWOOD HOTELS (HOT): Free Stock Analysis Report
INTERCONTL HTLS (IHG): Free Stock Analysis Report
MARRIOTT INTL-A (MAR): Free Stock Analysis Report
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