2021 HOTEL DEVELOPMENT
Transcript of 2021 HOTEL DEVELOPMENT
HOTEL DEVELOPMENTCOST SURVEY INDiA
2021
Megha TuliPartner & Co-Founder, Hotelivate
Shailee SharmaSenior Associate, Strategic Advisory, Hotelivate
2021 Hotel Development Cost Survey I 2India
Understanding the ReportHotelivate is pleased to share the analysis and insights of the 2021 Hotel Development Cost Survey | India. This survey presents the results of an extensive review of actual development costs of nearly
400 hotels, across positioning and locations, that opened in the country between 2002 and 2020, in addition to offering an in-depth understanding of trends and the factors impacting them.
The survey sample set profile of 378 hotels, having 55,488 rooms across 102 Indian cities, has been illustrated below. Totally, this represents ~40% of the nation’s branded/organised hotel inventory
spanning 38 hotel companies with numerous sub brands. In the report, where the sample set profile has influenced the survey results in ways contrary to the trends witnessed on ground, we have provided
the necessary indications. This section further offers qualifying conditions and the methodology deployed whilst analysing the data.
SURVEY SAMPLE SET PROFILE
Figure 1: Sample Set of the Survey
Hotels by Positioning
57(15.08%)
95(25.13%)
(17.2%)
38(10.05%)
(6.08%)
(26.46%)10065
23
Hotels by Inventory Range
(53.97%)(38.36%)
29(7.67%)
204145
Positioning
Economy/Budget
Mid-Market
Upper Mid-Market
Upscale
Upper Upscale
Luxury
Room Inventory Range
300 or more
100 - 299
Less than 100
Inventory Represented
Hotels Represented
Cities Represented
Brands Represented
55,488
378
102
38
Mid-Market and Upper Mid-Market hotels have the
highest representation in the sample set, together
accounting for 52% of the total; this supports the
trend that the development of lower positioned
hotels has gained traction in the last decade.
Additionally, most of the hotels are based in urban
locations (primarily in Tier 1 and Tier 2 cities) and
have 100–299 rooms, with the mean inventory of the
sample set being 147 rooms. Also, 85% of the hotels
opened in 2010 or later years, allowing for the
identification and analysis of more recent trends.
Figure 2: Hotel Brands Represented in the Survey
Hotels by Location Type
298 (78.84%)
80 (21.16%)
Hotels by Tier Type
150 (39.68%)
152 (40.21%)
76 (20.11%)
Tier Type
Tier 1
Tier 2
Tier 3
Location Type
Urban
Leisure
Hotels by Opening Year
Opening Year
2010-2015
2016-2020
2009 & prior
Accor
Berggruen Hotels
Independent Royal Orchid Hotels
The Leela PalacesHotels & Resorts
The Park Hotels
Shangri-LaHotels & Resorts
51 (13.49%)
191 (50.53%)136 (35.98%)
Dusit Hotels & Resorts
Four Seasons Hotelsand Resorts
Indian Hotels CompanyLimited
Jaypee Hotels & Resorts
Lemon Tree Hotels
Golden Tulip Hotels
Hard Rock Hotels
Best Western Hotels
Oakwood
Oberoi Hotels & Resorts
Mayfair Hotels& Resorts
Planet HollywoodInternational
Rosakue Hospitality
Spree Hotels
Svenska Design Hotels
Sarovar Hotels& Resorts
The Zuri Hotels& Resorts
Triumph Realty
Whitbread PLC
Wyndham Hotels& Resorts
Choice Hotels
Citrus Hotels
Concept Hospitality
Hyatt Hotels & Resorts
Hilton Hotels & Resorts Peppermint Hotels
IHG
ITC/Fortune Hotels
Lords Hotels & Resorts
Marriott International
QUALIFYING CONDITIONS
PRESENTATION OF SURVEY RESULTS
The development cost of each hotel and related information has been self-reported by the respondents. While careful attention has been paid to address anomalies and filter out incomplete or
questionable data, we have not independently verified the accuracy of each data point.
The survey results do not consider effects of inflation, change in prices of essential commodities, and currency exchange rates, and instead reflect the development cost provided by the
respondents as of the opening year of the hotel. Moreover, hotel development costs are impacted by a variety of factors that are unique to each project and hence, the survey results must not be viewed
in isolation. They are only meant to serve as a guideline to aid comparison across positioning and other parameters used in this survey.
Not all hotels in the sample set have provided complete information on the breakdown of the development cost or other related information that has been analysed in this report. In such cases, we have
carved out subsets of the sample to perform the analysis, eliminating responses with insufficient information.
All information has been collected and analysed by the staff of Hotelivate. Data confidentiality has been strictly maintained throughout this report, with survey results being presented only in the
aggregate; no individual hotel, brand or operator has been identified. Hotelivate reserves the right to amend all or part of the report without prior notice. No information contained in this report may
be reproduced or distributed in any form without the due acknowledgment and prior written consent of Hotelivate.
In this report, the survey results have been presented under the following four major sections:
Section A: Development Cost per Key
Section B: Development Cost per Key Breakdown by Major Cost Categories
Section C: Average Development Cost per Square Foot of Average Total BUA
Section D: Construction Tenure
Under each section, we have performed detailed analyses using five primary independent variables, as highlighted below.
IND
EP
EN
DEN
T V
AR
IAB
LES
PA
RA
MET
ER
S
Less than 100 100-299 300 and above| |
Urban Leisure|
Tier 1 Tier 2 Tier 3| |
2009 and prior 2010-2015 2016-2020| |
Room Inventory
Location
City Tier Type
Opening Year
Market Positioning Economy/Budget Mid-Market Upper Mid-Market Upscale Upper Upscale Luxury| | | | |
2021 Hotel Development Cost Survey I 3India
Hotel Development Through the Ages
In the mid-90s, when the market size of branded/traditional chain-affiliated hotel rooms in India was assessed for the first time, there were around 18,200 rooms operating across budget to luxury
positioning. Per our latest estimates, this figure stands at over 1,46,000 rooms as of 2020-21. Such an impressive growth has been possible owing to numerous factors, including the advent of
international hotel chains in India; rising popularity of the asset-light model for expansion (franchise and management contracts); increasing tourism demand (both domestic and international) that has
resulted in the need for quality accommodation across positioning; improving macroeconomic conditions that have supported the growth of businesses in the country, further enhancing commercial
travel; and a gradual shift in hotel development from upscale-luxury hotels to budget mid-market hotels that are quicker and relatively less expensive to build.
Around two decades ago, the Indian branded hospitality landscape was referred to as an inverse pyramid, with a larger chunk of rooms operating in the upscale-luxury category; however, this has
transformed dramatically since then, with almost 60% of the current room inventory positioned in the economy/budget-upper mid-market space (Figure 4, above).
As the supply of rooms rises, heightening the competition across positioning, determining the viability of hotel projects becomes even more necessary. To that end, a critical component to assess is the
hotel development cost. How much does it cost to build a hotel? How long does it take? Is it different across locations? Has it increased or decreased over the years? Endeavoring to address these
questions and many others, we are pleased to share the results of the 2021 Hotel Development Cost Survey | India.
Figure 3: Growth in the Branded/Traditional Chain-Affiliated Room Inventoryin India | 1995-96 to 2020-21
Note: Branded/Traditional hotel chains refer to companies with hotels that are predominantly organic-branded.
Source: Indian Hospitality - The Stats & Pulse (S&P) Report FY2021
Branded Rooms
Figure 4: Branded/Traditional Chain-Affiliated Room Inventory in India by Positioning | 2000 vs 2010 vs 2020
Upper Mid-Market/Mid-Market
Economy/Budget
Luxury
Upper Upscale/Upscale
2010 2020
18,160 33,500
1,08,682
1,46,352
1995-96 2005-06 2015-16 2020-21
2000
6,269
8,620
8,019
120
19,031
24,550
5,406
6,444
44,676
65,992
21,204
14,480
2021 Hotel Development Cost Survey I 4India
CAGR: 9%
CAGR: 13%
CAGR: 6%
Figure 8: DCost/Key (IL) by Tier Type
Tier Type
Tier 1
Figure 6: Avg. DCost/Key (IL) by Inventory and Positioning
Figure 10: DCost/Key (IL) by Location Type
Location Type
Figure 9: DCost/Key (IL) by Opening Year
Opening Year
Section A: Development Cost per Key
The sample set of 378 hotels (across all positioning) has a total development cost of 57,372 crore, with the `
average development cost per key computing to 1.03 crore. The survey results have been presented below by the `
primary independent variables listed earlier in the report.
Validating the general understanding that development cost increases with the rise in hotel market positioning, our findings suggest that an economy/budget hotel in India costs ₹36.61 lakh/key to build while a luxury hotel costs a little over five times at ₹194.54 lakh/key.
The range of development cost within the same positioning is vast, indicating a lack of standardisation. This can be attributed to two main factors – (i) some international brands tend to position their product a notch higher to gain acceptance from the Indian market, and (ii) personal aspirations of Indian owners to develop landmark projects as against efficient ones.
On analysing development cost by inventory and positioning (Figure 6) to determine whether economies of scale can be achieved beyond a certain number of rooms, we found that mid-market and lower positioned hotels, which are predominantly rooms-oriented, can optimise up to ₹11 lakh/key (or 19%) if they have 150 rooms or higher. Though this is not the case with higher positioned hotels, possibly due to the presence of more built-up public areas, such as F&B outlets, meeting facilities and other operating departments such as spas and fitness centres, it is interesting to note that the incremental cost per key is moderate (13%), to build an upper mid-market or higher positioned hotel with an average inventory of 252 rooms vis-à-vis another with 98 rooms. Hence, the viability of developing higher inventory must be evaluated in the context of market conditions.
Hotels in Tier 1 cities have a higher cost per key in comparison to Tier 2 and Tier 3 cities in India. We also observe that while the land cost is substantially lower in Tier 3 cities than in Tier 1 (and to a lesser extent Tier 2), the costs related to construction, MEP and FF&E aren’t vastly different (detailed later in the report). It must be noted, however, that the average room inventory of hotels in Tier 1 cities is 193 rooms, while that in Tier 2 and Tier 3 cities is 126 room and 98 rooms, respectively.
Leisure hotels in India seemingly cost slightly more to build than urban hotels although the average room inventory of leisure hotels in the sample set is 95 rooms, while that of urban hotels is 161. While this impacts the development cost per key one must also note that many emerging leisure destinations in the country are limited by the availability of resources to efficiently build a hotel, increasing the overall development costs as a result.
Hotel development costs have increased over the years, with the cost per key rising by 28% between the periods 2009 and prior and 2010-2015. Hotels that opened in the last five years cost 58% more to build per key than those that opened in the early 2000s.
Key Insights
Figure 5: DCost/Key (IL) by Positioning
DCost/Key (IL)
Po
siti
on
ing
Economy/Budget
Mid-Market
Upper Mid-Market
Upscale
Upper Upscale
Luxury
Median of Sample Set: 94,03,822
64,68,391
71,95,837
1,16,11,808
1,62,28,769
1,94,53,560
3,661,392
55,73,26744,90,899
1,11,62,647
1,25,87,056
Mid-Market& Lower
Upper Mid-Market& Higher
Figure 7: DCost/Key (IL) by Inventory Range
DC
ost
/Key (
IL)
Inventory Range
300 or more100 - 299
1,3
7,8
9,3
89
1,0
0,2
5,3
28
Less than 100
74,5
8,9
23
Costs 19% less per key
Costs just 13% more per key
2016-20202010-20152009 & prior
1,2
3,3
3,2
29
10,0
78,2
38
7,7
89,3
43
Leisure Urban1,0
5,9
6,0
16
1,0
2,9
8,6
47
11,0
34,6
54
Tier 3
9,6
87,7
70
Tier 2
9,5
41,3
18
2021 Hotel Development Cost Survey I 5India
150 rooms or less 151 rooms and above
*All numbers are in Indian Rupees
**DCost/Key (IL) = Development Cost per Key (Including Land Cost)
Section B: Cost per Key Breakdown by Major Cost Categories In this section, we have presented the survey results pertaining to the composition of the
development cost of hotels by the salient cost categories, further analysed by the primary
independent variables. It must be noted that for this specific analysis, we looked at a subset of
104 hotels comprising 13,322 rooms, eliminating entries with insufficient information.
Building/construction costs make up the highest portion of hotel development costs for most market positioning except upper upscale/luxury hotels, where MEP & FF&E collectively constitutes the largest cost category.
While Professional & Legal costs represent a near similar level of contribution across positioning, in absolute figures, upper upscale/luxury hotels have average soft costs that are 5.5 times more than economy/budget hotels.
Unsurprisingly, land cost as a percentage of total development cost (incl. land) is the highest for economy/budget hotels due to lower cost of construction for such hotels, resulting in lower project cost as a whole, while IDC is the highest in case of upper upscale/luxury hotels possibly due to a longer construction tenure and higher absolute amount of debt.
The ratio of various cost categories to the total development cost per key has remained comparable over the years; however, land cost has increased, contributing a higher percentage of the total.
Key Insights
Figure 12: Land Cost % by Positioning
Land Cost %
0% 10% 20% 30%
Po
siti
on
ing
Economy/Budget
Mid-Market
Upper Mid-Market
Upscale
Upper Upscale
Luxury
34.71%
18.98%
22.04%
13.70%
13.37%
17.17%
0%
20%
40%
60%
80%
100%
Bre
akd
ow
n P
erc
en
tag
e
Economy/Budget Mid-Market Upper Mid-Market Upscale Upper Upscale Luxury
MEP & FF&E
Soft Costs
Pre-Opening Costs
IDC
Building Construction Cost Civil Construction Cost for all above ground areaas well as basements
Mechanical, Electrical, Plumbing and Furniture,Fixtures & Equipment
Professional and Legal Fees, Project Management Fees,Architects, Consultants and Licenses
Linen, Operating Supplies and Working Capital
Interest During Construction
47.51%
20.58%
14.52%
5.67%
4.01%
7.71%
39.24%
24.22%
17.48%
5.71%
4.77%
8.58%
41.96%
14.88%
20.84%
4.07%
5.65%
12.61%
28.50%
19.47%
19.50%
6.22%
5.93%
20.39%
31.39%
11.60%
26.89%
8.95%
6.89%
14.28%
17.55%
15.99%
6.01%
5.13%
8.23%
47.08%
2021 Hotel Development Cost Survey I 6India
Figure 11: Development Cost Breakdown by Positioning
Pre-Opening Cost Interest during Construction Professional & Legal FeeTotal Building Cost MEP FF&E
Positioning
Figure 18: Land Cost % by Tier TypeFigure 17: DCost Breakdown by Tier Type
Figure 16: Land Cost % by Location Type
0% 10%
20%
20%
Tie
r Typ
e
0% 10% 20%
Lo
cati
on
Typ
e
Leisure
Urban
17.79%
16.05%
Tier 3
Tier 2
Tier 1
19.13%
16.02%
15.85%
0%
20%
40%
60%
80%
100%
Bre
akd
ow
n %
13.35%18.66%
9.31%
5.67%5.18%
7.37%
22.78%16.33%
14.81% 18.49%
34.57% 33.47%30.80%
19.66%
20.82%
3.94%4.11%
10.67%
0%
20%
40%
60%
80%
100%
Bre
akd
ow
n %
11.78%15.32%
7.24%
5.71%
5.12%5.35%
17.88%23.91%
19.45%14.55%
36.52%37.18%
Tier 1 Tier 2 Tier 3
Figure 15: DCost Breakdown by Location Type
2021 Hotel Development Cost Survey I 7India
Leisure Urban0%
20%
40%
60%
80%
100%
Figure 13: DCost Breakdown By Inventory Range
Bre
akd
ow
n %
Figure 14: Land Cost % by Inventory Range
0% 10%
Inven
tory
Ran
ge
100 - 299
Less than 100
300 or more
17.72%
16.61%
13.34%
9.05%
4.62%
5.01%
21.12%
17.80%
42.40%
Less than 100
21.95%
6.53%
5.61%
18.98%
16.93%
30.00%
300 or more
38.00%
19.33%
18.59%
5.84%
5.40%
12.84%
100-299
Pre-Opening Cost Interest during Construction Professional & Legal FeeTotal Building Cost MEP FF&E
Figure 20: Land Cost % by Opening Year
0% 10% 20%
Op
en
ing
Year 2016-2020
2010-2015
17.69%
13.96%
Figure 19: DCost Breakdown by Opening Year
0%
20%
40%
60%
80%
100%
Bre
akd
ow
n %
17.57%12.96%
6.21% 5.64%
5.21%
5.63%
20.64%16.35%
18.52%18.28%
37.03%35.97%
2010-2015 2016-2020
Inventory Range
Tier TypeOpening Year
Location Type
Section C: Development Cost per Square Foot of Average Total Built-up Area
This section looks at the Total Built-up Area (BUA) of the surveyed hotels, and the Average Total Development Cost per Square Foot of the Average Total BUA by the primary independent variables. For this
analysis, we considered a subset of 143 hotels comprising 18,261 rooms, eliminating entries with insufficient information. Moreover, for the calculation of Gross Floor Area (GFA), only the BUA “above”
ground has been considered.
We observe that the BUA below ground (typically basements) tends to average 27% of the Total BUA, with luxury hotels representing the higher end of the range, possibly owing to a larger support team as well as higher requirement of back of the house areas.
Although the development cost per key rises with the increase in positioning, the development cost/ft2 of total BUA is nearly similar across for hotels across the budget/economy to upscale positioning, rising steeply only for upper upscale/luxury positioned hotels, driven mainly by high FF&E costs, soft costs, and MEP costs, as mentioned in the previous section.
An important aspect to bear in mind here is that economy to mid-market hotels are represented almost equally (40% of the total) in both Tier 1 and Tier 3 cities in this subset; however, the product profile is quite different. In Tier 3 cities, such hotels have fewer rooms and more public areas (F&B outlets and event venues), whereas in Tier 1 cities they are akin to room factories.
The larger incremental spaces in Tier 3 cities are not as expensive to build/furnish as rooms. Thus, with an average room inventory of 98 keys, similar positioned hotels in Tier 3 cities have a lower development cost when compared to Tier 1 cities (where the mean room inventory is 190 keys).
In this subset, economy to mid-market hotels constitute 31% of all hotels that opened between 2010 and 2015 and 50% of all hotels that opened between 2016 and 2020. Consequently, the GFA/ft2 is lower for hotels that opened in the last five years. This is reflected in the average development cost per key as well.
Key Insights
Figure 22: DCost/Key (IL) & DCost/SqFt (IL) by Positioning
Average of Total BUA UG (Sq Ft)
GFA/Key
Figure 21: BUA (Sq Ft) & GFA/Key by Positioning
Economy/Budget Mid-Market Upper Mid-Market Upscale Upper Upscale Luxury
540
1,478
774
812
1,3231,311
Average of Total BUA AG (Sq Ft)
Average of Total BUA UG (Sq Ft)
GFA/Key
2021 Hotel Development Cost Survey I 8India
Economy/Budget Mid-Market Upper Mid-Market Upscale Upper Upscale Luxury
51,87,472
77,37,15685,00,146
1,45,42,414
2,21,17,389
2,36,06,109
7,537
13,221
6,954
7,816
10,849
7,386
Positioning
Figure 27: Average of Total BUA AG (Sq Ft), Average of Total BUA
UG (Sq Ft) and GFA/Key by Tier Type
Figure 28: DCost/Key (IL) and DCost/SqFt (IL) by Tier Type
Tier 1 Tier 2 Tier 3
1,51,32,933
1,07,52,08497,27,582
9,534
8,670
7,414
Figure 25: Average of Total BUA AG (Sq Ft) and GFA/Key byLocation Type
Leisure Urban
93,114
1,42,879
35,556
65,686
944
1,025
Figure 26: DCost/Key (IL) and DCost/SqFt (IL) by Location Type
Figure 29: Average of Total BUA AG (Sq Ft), Average of Total BUA
UG (Sq Ft) and GFA/Key by Opening Year
2012 2016
1,6
9,7
34
1,1
6,7
55
95,6
32
45,924
1,030
998
Figure 30: DCost/Key (IL) and DCost/SqFt (IL) by Opening Year
Location Type
Opening Year
2021 Hotel Development Cost Survey I 9India
Leisure
95,6
0,2
52
7,329
Urban
1,3
3,2
5,5
84
8,905
Tier 2
1,03,928
46,346
Tier 3
80,750
28,923
Tier 1
2,05,625
96,057
1,082
826
1,003
Average of Total BUA AG (Sq Ft)
Average of Total BUA AG (Sq Ft)
Average of Total BUA UG (Sq Ft)
Average of Total BUA UG (Sq Ft)
Average of Total BUA UG (Sq Ft)
GFA/Key
GFA/Key
Average of Total BUA AG (Sq Ft)
Average of Total BUA UG (Sq Ft)
GFA/Key
Average of Total BUA AG (Sq Ft)
GFA/Key
Figure 23: Avg. BUA (Sq Ft) & GFA/Key by Inventory Range Figure 24: DCost/Key (IL) and DCost/SqFt (IL) by Inventory Range
Less than 100 100 - 299 300 or more
77,99,420
1,28,09,943
1,91,79,235
6,113
11,419
8,705
Inventory Range
Dcost/Sq Ft (IL)
Dcost/Sq Ft (IL)
Dcost/Key (IL)
Dcost/Key (IL)
Dcost/Sq Ft (IL)
Dcost/Key (IL)
Dcost/Sq Ft (IL)
Dcost/Key (IL)
Less than 100 100 - 299 300 or more
60,56426,473
1,59,418
67,874
4,30,181
2,30,744
1,032
1,091
888
2012
1,3
5,6
4,1
39
8,420
2016
1,2
0,5
6,5
75
8,673
Tier Type
Section D: Construction Tenure
We also analysed the construction tenure of the surveyed hotels to analyse its impact on development cost. For this analysis, we reviewed a subset of 352 hotels comprising 52,442 rooms, eliminating
entries with insufficient information.
The average construction tenure of all hotels in the subset is 42 months.
When reviewed by positioning, as anticipated, luxury and upper upscale hotels have the longest construction tenure averaging 51 months and economy/budget hotels have the shortest tenure averaging 30 months.
However, when one looks at the maximum tenures, there are hotels that took 8 to 12 years to build as well, many of which were in politically unstable regions, holding back commercial and infrastructural development.
Nonetheless, maximum tenures ranging from 54 months to 144 months point to the fact that the actual time taken to acquire the funding and statutory licenses, permissions and approvals to open hotels in India delays projects.
Expectedly, large format hotels take longer to build (53 months on average) than smaller hotels (38 months on average). Additionally, the fact that most of the large format hotels in the subset have a higher positioning, further contributes to this trend.
Hotels in urban and leisure locations suggestively take nearly the same amount of time to build and open. Even when viewed by positioning, upscale-luxury hotels in both leisure and urban locations take, on average, 46-51 months to open.
Construction tenure of hotel projects in India has increased over time even though lower positioned hotels are being built, project management companies are being hired and more technology is being used. That said, many emerging locations are being tapped in recent years, where initial logistical challenges could have delayed hotel projects to a certain extent.
Key InsightsFigure 31: Construction Tenure by Positioning Figure 32: Construction Tenure by Inventory
Figure 33: Construction Tenure by Tier Type
Tier 1 Tier 2 Tier 3
20 1811
44 42 40
117
144
72
Figure 34: Construction Tenure by Location Type
Urban Leisure
1811
42 43
117
144
Figure 35: Construction Tenure by Opening Year
2009 & prior 2010-2015 2016-2020
18 1811
3543 4448
102
144
18 1121
30 30 3230 3844 48 51 5154
72
144
84
117
72
Economy/Budget Mid-Market Upper Mid-Market Upscale Upper Upscale Luxury Less than 100 100 - 299 300 or more
1118
3438 4353
144
108117
Inventory Range
Opening Year
MaximumAverageMinimum
2021 Hotel Development Cost Survey I 10India
Location Type
Positioning
Tier Type
Additional Takeaways for Developers
Overall, we note that hotels in India, particularly in the economy to mid-market positioning,
offer substantially more non-room areas in the form of multiple F&B outlets and meeting facilities
than similarly positioned hotels in North America or Europe. While this has always been true for
domestic hotel chains, international brands that have an established presence in the country or have
recently entered, have also realised the need to offer extended F&B options. While F&B contributes
anywhere from 20%-45% of the top line, based on the positioning, it certainly increases the
development cost of hotels as well.
The availability of less expensive manpower in comparison to North America and Europe has allowed
international brands to develop full-service instead of select-service hotels, even in the budget
and mid-market space in India. This further contributes to an increase in the development costs.
Another critical aspect to consider is the rise in construction input costs in recent years, especially
that of cement and steel. However, the implementation of uniform Goods and Services Tax (GST) is
being viewed positively by the construction industry, as it has helped standardise taxation rates of
raw materials across states. Going forward, an increased use of technology, streamlining of
development regulations by the government, and the advent of international contractors and
project management companies will likely make hotel construction in India more efficient.
While on this analysis, we also reviewed the impact of construction tenure on Interest During
Construction (IDC). As Figure 36 shows, when you have a longer construction tenure, IDC costs are
understandably higher, irrespective of the market positioning. For example, 53% of the hotels with an
IDC between 10.1%-15% of the development cost and 44% of the hotels with an IDC over 15% of the
development cost are in the upper mid-market and below segments.
On average, IDC accounts for 15% of the total development cost of hotels in India, which is on
the higher side. This is largely attributable to the high lending rates as well as long construction
tenures for hotel projects in the country. The industry’s long-standing demand from the government
for being accorded the infrastructure status that could possibly address this challenge hasn’t fully
been met yet. In 2012, infrastructure status was granted to three-star or higher category hotels
outside cities with a population over one million. Then in 2013, the government granted
infrastructure status only to hotels with a project cost of more than `200 crore (excluding land).
Significantly, both thresholds covered a very small percentage of hotel projects in the country.
Figure 36: Avg. Construction Tenure & Avg. IDC % by IDC % Range
IDC % Range
<5% 5.1%-10% 10.1%-15% >15.1%
37
44
5658
2.65%
20.76%
12.07%
6.90%
Avg. Construction Tenure Avg. IDC %
2021 Hotel Development Cost Survey I 11India
IN CONCLUSION
Our report seeks to provide trend lines across a variety of data points and matrices relevant to the
development cost of hotels. Having said that, hotels are a unique asset class with the
development timeline and cost breakdown for each one being different. This report provides
broad indicators to aid developers in controlling individual cost lines without getting entrenched
in the specifics of the outcome. To reiterate, there is no ideal cost structure for hotels of any
positioning, but an understanding of cost breakdown and range for the development cost per
key can result in efficient cost structures and hotel development.
The authors wish to thank Neha Katyal, Sanaya Jijina, Achin Khanna & Deepika Thadani for their
contributions to this report.
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