Hit hard by Covid, hospitality sector expects revival in the new year 2021

Things seem to be looking up even for the hospitality (at least for the hotel industry) sector, one of the worst hit sectors post-pandemic as the sector bets big on domestic travel. The New Year (2021) started on a spirited note with all indicators suggesting an uptick in domestic travels. Sector analysts expect domestic travel to pick up pace from March/April 21 and onwards, as employees return to workplaces and travel advisories by companies are softened.

With the emergence of recovery indicators, the hospitality sector is expected to witness a revival in room night demand in the last quarter of the current fiscal, as compared to the previous quarters of the year. Occupancy levels have grown month on month since September 20 to cross 35 per cent sector-wide in November 20 (as per STR data), which is the highest since the beginning of the nation-wide lockdown in March 20. The revival of the sector has primarily been driven by leisure 'revenge travel' during weekends and the festival season, weddings and food & beverage demand. Domestic leisure will continue to drive occupancies across the country. F&B demand will continue to grow as eating out will increase albeit cautiously, if a recent study by JLL, South Asia is to be believed.

That's not all. Large restaurants in hotels with all necessary health and hygiene protocols could also start seeing the benefits from this demand and weddings ceremonies will likely take centre stage again providing seasonal impetus to the hospitality sector. Furthermore, repurposing of brownfield hotel assets for alternate uses such as co-living, senior living and student housing facilities may start happening, subject to demand in specific markets.

Just to give an example of how things may play out in the days to come, Goa, India's most sought-after leisure market, witnessed considerable growth in recent months achieving a market-wide occupancy level of almost 55 per cent in November 20. Luxury and upper upscale hotels in Goa performed well in November 20, achieving healthy occupancy levels ranging between 60 per cent and 70 per cent as compared to occupancy levels in Nov'19 that ranged between 65 per cent and 75 per cent.

Quite significantly, hotel investments in 2020 had started on a good note with two large transactions totalling Rs 547 crore. Despite investment activity being paused since March'20, there are emerging signs of re-valuations and a slow demand revival, improvised cost structures and reduced profit levels in the next two years. Serious investors are giving prominence to debt service ratios, operating costs and suppressed demand from corporate travel, conventions, conferences and exhibition business. Besides, travel restrictions preventing site inspections and poor visibility of future revenue streams have added on to timelines of investment sales. When it comes to the investing community, investors are mostly inclined to evaluate operational assets in key markets rather than Greenfield developments. This trend is witnessed across the country. Investors are likely to firm up investment decisions as performance cycle picks up and fear of missing good deals may drive the investment activity.