Budget hotels employ mix use development route for expansion
Apr 15, 2014
Source : The Economic Times


MUMBAI: Stung by rising real-estate costs, mid-market and budget hotel chains are taking the mix-use development route for expansion. Hotel chains such as Tune, Ginger, Lemon Tree and Keys say they find this a quicker way to expand, while saving costs.

"For budget brands, it helps reduce the fixed operating cost per key (room) as it is based on the concept of shared services," said Abhijeet Unathe, national head of hospitality and leisure at property consultancy Knight Frank India.

Under mix-use development, the hotel chain sets up its rooms and back-end facilities in a portion of an already existing complex — for instance, an IT park or a mall — unlike setting up a whole new standalone property which requires significant capital expenditure and construction time. A budget hotel costs at least Rs 15-20 lakh per room and usually takes two-three years to be launch-ready.

While the development period of budget hotels is comparatively short, delays in securing approval and licences for building them can derail even the best-laid plans. That is where the mix-use concept comes in.

"It is the way forward for budget and economy hotels in the micro market, as the brands can tap into densely populated areas by converting existing resources into the brand's touch points," said PK Mohankumar, MD and CEO of Roots Corporation Ltd, a wholly owned subsidiary of Indian Hotels Co and operator of budget brand Ginger Hotels.

Hoteliers are banking on this model to save real-estate cost, which constitutes at least 25-30% of the cost of the project.

"Embedded cost of land is very high. So we do the mixed use development where the lower floors might be used for commercial purpose but the hotel is set up on the higher floors as retail rental is lesser as you go up," said Rahul Pandit, president and executive director at Lemon Tree Hotel, which owns a chain of upscale, midscale and economy hotels.

Budget brand Mango Hotels recently opened its first mixed-use property at Reliable Tech Park in the Airoli suburb of Navi Mumbai.

"The property was designed in one year and is spread over two floors, with 64 rooms, an F&B outlet and a conference centre. All this would have taken more than three years if we had gone for building a new property," said Mahesh Gandhi, founder of Apodis Hospitality that owns the brand.

In mix-use development, the hotel is designed to carve out as many rooms as possible with limited space wasted on public areas.

According to Alan D'Mello, a senior hospitality communications consultant, this strategy works well in tier-2 and tier-3 towns.

"Places where the developer has underutilised space, he can optimise it through partnerships with mid-market and budget hospitality companies," he said.

While commercial complexes or malls with rooftop mid-market hotels are catching up, the concept also has its own limitations. Berggruen Hotels-owned Keys Hotels plans to expand through this model only if it meets the security and services requirements of the brand.

The typical design and services required for a budget hotel are different from those of commercial complexes or malls. "Hotels will need its own separate service like lift, security, entrance, private access, etc. which may be difficult in such developments," said Unathe of Knight Frank India.




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