Summary
Chennai is the capital city of the Indian state Tamil Nadu, in the south of India. It is the fifth most populous city in India and one of the fastest growing cities in the world. According to the Confederation of Indian Industry, the city is estimated to grow to a $100–billion economy, almost 2.5 times its present size, by the year 2025.
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Maria-Pia Intini
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Chennai is recognized as an important business location home to many national and international businesses and factories. Chennai accounts for 27% of India’s automobile industry and 45% of the auto components industry in India. Software services companies contribute to 14% of India’s total software exports. In fact, the Tidel Park in Chennai is the largest IT Park in Asia. Chennai is an important center for banking and finance, medical tourism, film and TV industries.
Business Demand Generators
The major generators of business hotel demand in the local market area are as follows:
• Global automotive plants (such as Hyundai, Ford, Mitsubishi, BMW, Renault/Nissan, Daimler), automotive components and specifically the tire industry (such as JK Tyres), for which Chennai has earned the name of “Detroit of Asia”;
• Leading telecom and electronics companies (such as Nokia, Flextronics, Foxconn, Dell, Motorola, Aspocomp and Samsung);
• IT parks being built along the IT Corridor and the northern suburb of Ambattur;
• Chennai Trade Centre, the first fair infrastructure that has been developed by the India Trade Promotion Organisation; and
• Chennai International Airport is the third busiest airport in India in terms of both international and overall passengers and is now under expansion that should be completed in 2012.
Leisure Demand Generators
The major generators of leisure hotel demand in the local market area are as follows:
• The Rajiv Gandhi Memorial;
• Madras Motor Sports Club, where many races and rallies take place including the Formula II races;
• Mamallapuram, located at approximately 58 kilometers (36 miles) from Chennai and the French-flavored charms of Pondicherry located at some 160 kilometres (99 miles) to the south of Chennai;
• Fort St. George in Chennai, the English East India Company’s first bastion in India, which today is the seat of Tamil Nadu’s government;
• The High Court building, an Indo-Saracenic building built in 1892;
• The Marina Beach along the Coromandel Coast, one of the longest urban beaches in the world;
• The Music Season, one of the largest music festivals in the world, in December and celebrating the 1927 opening of the Madras Music Academy and the Sangamam Arts Festival in January;
• Kollywood, the Tamil film industry in the residential neighborhood of Kodambakkam;
• The Madras Snake Park and the Crocodile Park near Mamallapuram.
Visitation
The visitation to Tamil Nadu has grown every year since 2001, with the exception of 2010, which was a result of a slight decrease in the total number of domestic visitors. The number of international visitors saw an impressive 18.4% growth from 2009 to 2010. The compound annual growth rate of international visitors was 15.4% over the period from 2001 until 2010. The CAGR for domestic visitors during the same period was 18.7% resulting in a CAGR of 18.6% for domestic and international visitors combined.
Source: Ministry of Tourism, Government of India
According to the Ministry of Tourism, Government of India, in 2010 the Tamil Nadu State ranked second and third in terms of international and domestic tourism visits, respectively.
Domestic visitors come from Andhra Pradesh followed by Karnataka, Kerala, West Bengal and Bihar. Visitors from Sri Lanka continue to be at the top list of foreigners coming to Chennai, followed by visitors from Malaysia, Singapore, the United Kingdom, France and the United States.
At the time of publication, the 2011 data was not yet published.
Hotel Performance
Nearly 75% of the city’s demand base is of business origin, with the remaining being MICE and leisure.
Relative to other cities in India, Chennai has performed well, achieving occupancy rates of 66% in 2009, 62% in 2010 compared to 66% in 2011, representing an increase of 3% despite a 12% growth in additional available rooms during the same period. The decline in 2010 was due largely to the global economic crisis, but the market fully recovered in 2011 despite the addition of the new supply to the market. The average room rate for the Chennai hotels market was $162 in 2009, $140 in 2010 and $129 in 2011.
Source: Colliers International Research
New Supply
Over the next three years, the Chennai market is expected to add almost 2,835 new rooms while approximately 935 were added in the last year.
Source: Colliers International Research
Significant new projects planned in Chennai include the following hotels:
• The 202-room Park Hyatt, a 5-star hotel that will be located on Vellachery Road. The hotel is scheduled for opening in mid-2012;
• The 329-room Leela Palace, a 5-star hotel that will be located at close proximity to the landmark Chettinad Palace at MRC Nagar. The 14-story high rise hotel is scheduled for opening in 2012;
• The 42-room Asiana Place GST will be a 4-star hotel located on GST Road and is scheduled for opening in 2012;
• The 140-room Park Plaza will be a 4-star hotel located in Mylapore and is expected to open in 2014;
• The 302-room Traders by Shangri-La will be a 5-star hotel located in the middle of Old Mahabalipuram Road. The hotel is expected to open in 2013;
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Isabel Vaz-Ferreira
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• The 100-room Ramada will be a 4-star hotel located in the Gold Souk Grande development in Vandalur and is expected to open in 2014;
• The 189-room OMR Ibis will be a 3-star hotel located on the Old Mahabalipuram Road and is scheduled for opening in June 2014;
• The 371-room JW Marriott will be a luxury 5-star hotel located on MRC Nagar, in close proximity to the Marina Beach. The hotel is scheduled for opening in 2014;
• Ibis Mount Road will be a 3-star hotel located in the middle of Mount Road. The hotel is scheduled for opening in 2015;
• Ibis SIPCOT will be a 3-star hotel located nearby the SIPCOT, a government-owned premier institution for the development of small, medium and large scale industries, in the Egmore area. The hotel is scheduled for opening in 2015.
Outlook and Conclusion
Chennai’s hotels have witnessed an increasing business demand, which is expected to grow mainly driven by corporate travel budgets leading to higher business travelers. In addition, the already well-established tourist industry continues to be promoted and facilities improved to increase tourist visitor numbers.
The city has recently started segregating into distinctive micro areas, with the regions of Sriperumbudur (Chennai’s industrial hub) and OMR (Chennai’s IT corridor) attracting significant investments into hotels, primarily in the budget and mid-market segments.
Given the number of existing and new companies setting up their offices in the city and its micro areas, there is a significant extended-stay demand, which will result in a strong growth of extended stay products. New upscale and luxury hotels with extensive meeting facilities are expected to boost the MICE demand.
Expansion of the existing airport indicates the growing need to boost the capacity to cope with the increased air demand in the area. With strong growth in visitor numbers and as economic climate improves the long-term outlook for the Chennai hotel market will remain strong and positive.
Maria-Pia Intini is a Consultant and Isabel Vaz-Ferreira is a Senior Consultant at Colliers International Hotels in London. Colliers International Hotel provides dedicated hotel and resort property expertise to accelerate the success of our clients around the globe. Colliers International has over 45 people specialising in hotels and resorts based in the UK alone. The team of international experts in London work alongside colleagues around the world to provide a network of hotels teams covering Europe, the Middle East and Africa, the Americas, Asia and Australia Colliers.
Disclaimer: This report gives information based primarily on published data which may be helpful in anticipating trends in the property sector. However, no warranty is given as to the accuracy of, and no liability for negligence is accepted in relation to the forecasts, figures or conclusions contained in it and they must not be relied on for investment purposes. This report does not constitute and must not be treated as investment advice or an offer to buy or sell property. March 2012
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