JLL: Indian hospitality industry sees 52.8% dip in RevPAR

India’s hospitality industry has witnessed decline of 52.8% in Revenue Per Available Room (RevPAR) during January to September (YTD Sept) 2020 over the same period last year due to the impact of Covid-19 pandemic, according to JLL’s Hotel Momentum India (HMI) Q3 2020, a quarterly hospitality sector monitor. Overall, in inventory volume, the brand signings declined by 19% in Q3 2020 over Q3 2019, however international operators signed a greater number of keys than domestic ones.

All key 11 markets in India reported a decrease in RevPAR Performance in Q3 2020 over the same period last year. Mumbai continues to be the RevPAR leader in absolute terms, despite the decline of RevPAR by 71.7% in Q3 2020 compared to Q3 2019 whereas Bengaluru saw the sharpest decline in RevPAR in Q3 2020, with 88.1% decline compared to the same period in the previous year.

According to the findings of HMI Q3 2020, international operators dominated signings over domestic operators with the ratio of 53:47 in terms of inventory volume. Demand in leisure destinations began seeing weekend occupancy spikes as the lockdown restrictions were further lifted in August.

Other cities such as Pune (86.2%), Kolkata (82.6%) and Goa (78.8%) also witnessed sharp declines in RevPAR.

“Investors are taking interest in exploring operational hotel opportunities both in business and in leisure locations. With the phased unlocking of the economy in the third quarter of 2020, we are witnessing gradual growth in demand particularly in leisure market with weekend occupancy spikes”, said Jaideep Dang, Managing Director, Hotels & Hospitality Group (India), JLL.

Total number of signings in Q3 of 2020 stood at 24 hotels comprising of 2,314 keys recording a decline of 19% compared to the same period last year. The Reserve Bank of India (RBI) has announced de-linking hotels from commercial real estate enabling hotels to seek capital loans from banks and ease out liquidity issues, especially for new hotel projects.

Speaking on the development, Dr Samantak Das, chief economist and head of research & REIS India, JLL said, “With the fall in economic activity, COVID-19 has impacted asset utilisation and profitability tremendously. In the current unprecedented circumstances, sale and lease-back of assets is likely to provide long term steady rental yields for funds with patient long term capital as monetisation of these assets could reduce substantial debt, and funds generated through the sale of these assets could be high enough to cover the entire debt.”

One of the biggest challenges is the mindset of corporates, who feel that owning real estate is of utmost importance. In many cases, since land is allocated under various state industrial policies, the option of sale and leaseback is not considered. However, in today’s uncertain economic environment, corporate finance heads are likely to look at options using real estate as a source of liquidity. Investors may face challenges on account of ownership titles and valuation. Such deals could take longer time to close due to documentation and taxation issues.

The current pandemic has challenged our take on value, consistency, certainty and quality, which apply for investment decisions too. Investors will gain new lessons and thrive with the latest opportunities in the Indian real estate.