The desert rose

Set to bring in an arsenal of diametrically opposite luxury hotels and budget hotels into the country, hotel investment and development company, Nakheel Hotels, hopes to open up new segments of the market, says Joe Sita, CEO, Nakheel Hotels. By Neeti Mehra

Joe Sita CEO Nakheel Hotels

It is the strong underlying fundamentals that are driving growth in the Indian hospitality market, says Joe Sita, CEO, Nakheel Hotels. According to him, "Increasing demand from business and leisure travellers, strong economic growth and increasing wealth, along with other factors such as the growth in LCCs have contributed towards growth in this sector. Demand has outpaced supply, making development of new hotels an attractive investment opportunity," says Sita; adding that domestic demand is fuelling a major chunk of the growth too, thanks to the large middle class with a large disposable income to spend on travel and leisure.

Speaking of pitfalls to this exuberant growth, he says. "In the short term the global credit crisis will no doubt have an impact on developers' ability to finance projects and will inevitably cause some slowdown in market activity," he adds, thus the company is diversifying its portfolio to sidestep possible risks of a single-segment focused approach.

Focus India

The challenges facing the development company in India include prohibitive land costs, especially in key gateway cities. "Additionally, existing hotels are difficult to acquire as owners tend to have unrealistic expectations of value. At the prices owners expect, returns to prospective buyers are often unsatisfactory," explains Sita. The solution, the company proposes, is to enter the market in partnership with a local developer who has access to suitable sites or a portfolio of existing hotels.

A second solution is government led - planning regulations, which are key to the ongoing development of the industry. "Floor space ratios need to be at a level that will make development of hotels feasible. Allowing more mixed-use developments will also support the financial feasibility of developing new hotels," says Sita, pointing out that the company's strength is its development expertise and resources to successfully execute new hotel developments and transactions.

Nakheel Hotel's entry into the Indian market will follow the group's overall strategy of investing in luxury hotels in key gateway cities and resorts and in branded budget hotels. Says Sita, "We will work with strategic partners in relation to branding and operation of our hotels," he says.

Looking ahead

The company is focussed on the luxury and branded budget segment of the hotel market and sees immense opportunities. "In the branded budget segment, guests expect a clean and safe room - a good night's sleep at an affordable price in a convenient location," says Sita. In this segment, guests would not want to pay for services and facilities above the basics, and he avers, "Consistency of product and standards at an affordable price is the key to satisfy guests in this segment." The company hopes to support domestic travel by providing products which make travel more affordable. "It will thereby help to open up new segments of the market," he says. The company has already tied up with entrepreneur Stelios Haji-Ioannou to develop eight easyHotels across metro cities in India. On the other hand, the luxury segment guests expect very high levels of service that anticipates their needs and is attentive, yet discreet. The company plans to tap this segment too by bringing brands that are not currently present in the market, and says, "We see continuing growth in branded budget hotels globally but especially in the emerging markets of Asia and the Middle East."

Sita believes

Sita believes that with increasing wealth, there will be continual growth at the top end of the market as well. Speaking of new hospitality products, he feels that fractional ownership and vacation clubs will be the next big winners. "The cost of land will make it more and more difficult to achieve satisfactory returns on investment through traditional hotel developments, so the ability to realise returns upfront through sale of condo units or fractional interests will help support the feasibility of new projects," he explains.

Also, mixed use developments which include residential, commercial or retail components are also likely to become more common. And at a time where the world is becoming flat, brands will become increasingly global. "This trend will continue with international brands entering the Indian market and Indian brands increasingly going global. Global brands need to be attractive across multiple markets, while the national identity and heritage of a brand can give a sense of character and differentiation in other markets," he concludes.