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India tourism booms, but just try finding a hotel

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Apr 24, 2008

NEW DELHI - India is starting to address its shortage of hotel rooms in big-city centers. For business travelers and tourists, there's a snag: The new rooms may not be where they're wanted.

India has only 86,000 hotel rooms in a country of 1.1 billion people. By contrast, there are more than 4.3 million rooms in the U.S and almost 74,000 in New York City alone.

With India's economic boom generating more foreign and domestic travel in the country, room rates have shot up in New Delhi and Mumbai, where a night at a central five-star hotel can cost more than $500. The Ministry of Tourism predicts India's room shortfall will increase by more than 50% to about 150,000 rooms by 2010 because of the increasing demand.

Indian and international hotel chains are seizing the opportunity. Marriott International Inc. has 24 hotels in its pipeline to open by 2011. Hilton Hotels Corp. has agreed to put up 75 hotels over the next seven years in a partnership with Indian land developer DLF Ltd. Starwood Hotels & Resorts Worldwide Inc. plans 12 Sheraton and Westin-branded properties in the next three years.

Most hoteliers are targeting foreign tourists and business travelers who are looking for affordable accommodations. Foreign tourism has nearly doubled in the past five years, to five million visitors last year, according to government figures.

As domestic tourism grows, the new hotels are looking to that huge market, too. Last year, India counted 500 million domestic tourists.

"The sky's the limit," says Koos Klein, president of Hilton Hotels in Asia Pacific. "It just depends on who grabs the opportunity first."

But city-center land is scarce, building codes make constructing large hotels in urban centers virtually impossible and many Indian states offer tax breaks that encourage building outside the big centers. The result: Real-estate developers and hotel companies are putting up most of their new hotels on the fringes of the country's political and financial hubs.

As long as India's economy keeps growing quickly and construction of new suburban offices and townships continues, the hotels should still find plenty of guests. But an economic slowdown could leave new projects starved for visitors. And the hotel boom is unlikely to help trim the prices of city-center locations.

Take the Westin New Delhi-Gurgaon, which is slated to go into operation Jan. 1, 2010, and will be the first Westin Hotel to serve India's capital. The hotel isn't in New Delhi at all. It's going up in Gurgaon, a satellite city in the state of Haryana, 15 miles south of the capital, a traffic-snarled commute that can take up to two hours.

A Starwood spokesman said the hotel is intended to cater to visitors with business in New Delhi and upper-crust tourists, and the chain expects guests will be willing to commute to their destinations.

Meanwhile, of five Hilton-branded hotels planned for New Delhi, the closest one to downtown is in Saket, a southern suburb. Three others are in Dwarka, an hour's drive from the city center, though only about 15 minutes from the airport.

A Hilton spokesman said the hotels will draw plenty of guests because the locations, in budding suburban business communities and, in the case of Dwarka, near a new convention center, have become destinations in their own right.

The same thing is happening in Mumbai, India's largest city and business capital. Other than a Four Seasons that recently opened downtown, the few hotels in development in Mumbai are either near the airport or in the city's eastern suburbs, both sites at least an hour's drive to the city center. In three years, Marriott will have as many properties in Pune, a growing second-tier city, as it does in Mumbai, 75 miles away.

A Marriott spokesman said the company isn't worried about filling rooms because its hotels will be in areas that draw business travelers.

New hotels are coming to other Indian business destinations as well. Of InterContinental Hotels Group PLC's 14 Holiday Inns going up in India, three are in Bangalore, an information-technology-industry center. None are in central New Delhi or Mumbai.

When New Yorker David Miller recently visited India for a family vacation, he stayed at The Claridges, a five-star hotel near downtown New Delhi. He paid $400 to $500 each night for the privilege. Though the rates were high, Mr. Miller says he wouldn't really consider staying at new hotels if they're miles away. "At the end of the day, you don't want to take an hour to get to a bed," the 58-year-old lawyer says. "You just want to go to sleep."

The main problem, hotel executives say, is expensive land. When the Mumbai-based Leela Group bought three acres in central New Delhi last year, it shelled out $152.75 million. The only way to make it commercially viable, the company says, is to build a "trophy" hotel there, with room prices at, or above, those of five-star hotels.

Hoteliers say they could still make up for the hefty land costs if they could build large skyscrapers with enough rooms to bring in large streams of revenue. But India's city codes have a stringent restriction on floor-area ratios, or how much total floor space can be built on a given plot of land.

That restriction is holding back hotel development in inner city areas, says Paul Logan, vice president for development in Southern Asia and Korea for InterContinental Hotels.

Last month, the Delhi Development Authority, which regulates land allocation and construction, increased the limit on floor-area ratios for hotels to 2.25, meaning a hotel could build 225 square feet of floor space for every 100 square feet of land it occupies.

A spokesperson for the committee said that the higher limit should ease hoteliers' concerns about commercial viability. However, New Delhi's limits are still more stringent than other cities. Downtown Manhattan offers floor-area ratios as high as 15.

Other attempts to offer incentives haven't helped much, either. For the 2010 Commonwealth Games, for example, New Delhi offered income-tax relief for hotels built in time for the international sporting event. But out of the 30,000 rooms needed, the city has only been able to line up 17,000, says M.N. Javed, hotels commissioner at the Ministry of Tourism. "There will always be a shortage in India," Mr. Javed says. "Our biggest problem today in marketing India is the high cost of rooms. But it will always be like this."

wsj.com

India tourism booms, but just try finding a hotel
Taj Palace Hotel - New Delhi



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