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Kolkata Hotel-scape: Craving to catch up with other Metros

The hospitality industry in the Eastern metropolis of Kolkata which has been devoid of much action until now has started looking up slowly in the last couple of years with new investments coming in. However, there are doubts among industry pundits if the city would become another supply surplus story. P Krishna Kumar studies the evolving hotel landscape in the City of Joy

Thursday, January 9, 2014, 18:00 Hrs  [IST]


It seems Kolkata is trying to catch up with other metros of India and also trying to find its lost glamour and place in the hospitality space if the recent developments in the hotel landscape of the city are anything to be believed. There is nothing more promising than the opening of the renovated hospitality icon – The Great Eastern Hotel – which withstood all the turbulence in the political history of the country for more than 170 years. Being a commercial and political hub of British India for a long time, hospitality industry had deep roots in the social fabric of Kolkata.

However, the situation changed after independence. Kolkata slowly but steadily lost its name and fame, as businesses started shifting their base to other cities. The inclement business environment in the city has had its adverse impact on hotel business also. There was hardly any new investment into hotels for so many years and decades together. Even after the opening up of the economy in the 90s, when other cities witnessed major activities and investments in various industrial and service sectors, including hotels, Kolkata lagged behind.

The hotel business in Kolkata was dominated by small local brands for a long time. The Park Hotel was one of the first recognised hotels to establish in the city in 1967. Hotel Hindustan International (HHI), a Kolkata-based hotel group, is another local player which set up their first hotel in Kolkata in 1969. It took more than 20 years for another branded hotel group set foot in the city.  Taj Group ventured with Taj Bengal in 1989. There was a long hiatus before ITC came up with ITC Sonar Bangla in 2002. Then came Hyatt Regency, The Pride Hotel, etc.

pramode_bhandari.jpgSupply-demand dynamics
Over a decade, there has not been much change in the supply-demand dynamics in the city as far as hotel inventories are concerned. As per HVS annual report on hotels, Kolkata has the best performing hotel market in terms of occupancies in the year 2012-13 at about 70 per cent. Even during the peak months of winter, the occupancies in luxury hotels in the city go up to more than 80 per cent. Pramode Bhandari, Executive Manager, The Park Kolkata, says, “Kolkata has witnessed a marginal increase in hotel room supply over the last decade. It is evident that the developers have not viewed Kolkata favourably as a market for investment. The compounded growth of hotel developments in the city over the last decade is the lowest amongst all the other metropolitan cities in India. While it may be said that the growth in hotel room supply in Kolkata at 21 per cent, has been amongst the highest in the country, it must be noted that the absolute number has only increased by 376 rooms.”

britta_leick_milde_new.jpgKenneth Scott, General Manager, The Pride Hotel, Kolkata, confirms, “With the entry of new branded and unbranded hotels, there has been an addition in the city’s room inventory in the last two years, however, there remains a mismatch during winter months due to the high demand of the Wedding Segment and MICE movement.”  Unlike many cities in India, Kolkata has not seen a major increase in supply over the last years, affirms Britta Leick-Milde, General Maneger, Hyatt Regency Kolkata. “With a relatively low inventory of five-star hotel rooms in the city the winter season with high demand is under pressure (approximately 80 per cent occupancy) and hotels are yielding higher rates, however during the summer/monsoon time supply is still larger than demand as the leisure market is not travelling,”  she added.

deepak_puri.jpgThe supply-demand dynamics of hotels in the city of Kolkata is so far at a “comfortable level”, informs Deepak Puri, President, Hotel & Restaurant Association of Eastern India (HRAEI).  However, hotels largely depend on the winter season and wedding seasons for volumes even now, he adds.

Uncertain future
The city and the region as a whole failed to show a consistent momentum in terms of business investments over the decade.  Many progressive decisions by the government had to be called back because of mass agitations related to land acquisitions.  The Tata Nano project at Singur was a visionary project which had to be called back because of mass agitations.  The uncertainties in investment atmosphere are a major worry for hospitality industry.  Most of the hotel projects which are in the pipeline and about join the market in the coming months were actually conceived on the back of the Singur Nano project, observes Puri.  With no mega industrial projects in the horizon, there are fair amount of doubts in the minds of the industry stakeholders, how the supply-demand dynamics Kolkata would turn out.

The Lalit Hotels recently opened the first phase of renovated Great Eastern Hotel, and the Taj Group has opened The Gateway Hotel EM Bypass Kolkata. Other luxury hospitality brands which are due to commence operations in the city include Novotel, Westin and JW Marriott. ITC also committed additional 300-room to the inventory of the city.  It is expected that the hotel inventory in the city is bound to double in the next couple of years.

It is not yet clear how the future hospitality business landscape will turn out with new supplies joining the fray.  If these investments are not backed and complemented by investments in other sectors of the industry, the hotel investors will have a tough time to realise the investments. “With incoming additions in 2014 and 2015 (ITC extension and JW Marriott) the city will be faced for the first time in many years with a drastic increase in supply which obviously needed to be supported by the local government to lay ground for better economic opportunities to business in general to grow the demand for the hospitality industry as well,” opines Leick-Milde.

kolkata_hotel_scape_2.jpgEmergence of new Micro markets
Kolkata has grown beyond old CBD of Park Street and Chowringhee in the last few years.  Large real estate developments have sprung up around Salt Lake and Rajarhat New Town Areas.  Lot of corporate activities, IT and ITEs firms who earlier used to operate out of congested spaces in the central district started relocating to these places.  Hotels also followed suit. “The new micro market is developing around the airport at Salt Lake, New Town area, Rajarhat, with this area becoming the IT hub of the East with all the blue chip IT companies setting up base. All new hotel investments are bullish and are coming up in and around this catchment area to cater to this very important location. Branded companies are in the process of building new hotels (green field projects) as well as are scouting around for management tie up’s,” informs Scott. Bhandari says, “Rajarhat area will be like what Gurgaon or NOIDA is to Delhi. A number of hotels are slated to come up in the next year or two, like Novotel, Westin, Intercontinental, etc.”

Like in other parts of the country, the issues of the hospitality industry in Kolkata are the same – delays in project and other licencing clearances, lack of single window clearance system, exorbitant taxes on F&B, etc. “We have been trying to convince the government on the need to accord industry status for hotels and restaurants, single window clearances, etc. Taxes are quite high on restaurants in the city,” informs Puri. “At the State level, setting up of a Hospitality Development Promotion Board under the chairmanship of the State Chief Secretary with adequate private partnership would fast track projects. Also, taxes need to be rationalised and excise rules for applying for new licences need to be looked into and lead time from application to approval reduced,” suggests Scott. According to Bhandari, besides other challenges in terms of taxation and clearances, Floor Space Index (FSI) for hotels in the city is lower than for residential properties, which is detrimental to investment and tourism and employment in the sector on the whole. “Benefits and additional FSI on greenfield projects is not as lucrative as offered by other states in the country. Five-star hotels in Maharashtra are providing an FSI of five, while those in West Bengal are restricted to 2.75,” he says.

Ray of hope
Amidst all the challenges, what is giving hope to the industry in the city is the pro-activeness of the present state government to promote brand West Bengal in the tourism map of India, and the increasing interest of national and international carriers to open routes to Kolkata airport. A senior official of the West Bengal government has recently said that European carriers including Turkish Airlines have evinced interest to open their network to Kolkata. The announcement to reduce Aviation Turbine Fuel (ATF) by 50 per cent at Kolkata and zero ATF at Durgapur might be picked up by air carriers in coming time. “More and better connectivity from international key cities to Kolkata’s new airport will definitely give a boost. The overall industrial growth in Bengal, which again the Government has been quite aggressively promoting, will contribute to the growth in the hospitality sector in the years to come,” Bhandari observed.

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