Though the demand for room nights has improved recently, hoteliers are concerned about the new supply. HVS estimates that 99 new hotel projects are under various stages of construction. "At an average room size of 100 rooms per hotel, this reflects an increase of 9,900 additional hotel rooms in India or approximately 11 per cent of India's current rooms supply," the HVS study says, adding that this would certainly have an impact on ARR.

In 1999-2000, on an average, hotels saw a decline of 8 per cent in ARR compared to a decline of 2.1 per cent in the previous year. The occupancy level during the same period this year, however, declined by 4 per cent compared to a decline of 3 per cent last year, the study says. This reflects that the decline in ARR is more than the occupancy level.

Interestingly, the decline in occupancy level is witnessed only in the other star categories whereas, the five-star deluxe and the three-star categories have witnessed a marginal increase in their occupancy levels. The ARR in 1999-00, however, declined across all the star categories, with luxury hotels being the worst affected.

The study indicates that most Indian cities are experiencing some level of hotel development activities, however, such development activities are high in Mumbai, Delhi, Bangalore, Chennai, Calcutta and Cochin.

According to the study, most of the 99 branded properties likely to be operational in the next three to four years' time, fall under the budget category, reflecting a growing trend of budget brand penetration in the Indian hospitality market. While most of these developments are greenfield projects, a small percentage are conversions from existing three-star hotels. "We anticipate that in a few years, the number of branded three-star hotels will far exceed those in the luxury market," HVS International New Delhi office managing director Manav Thadani says. The HVS study, however, expects occupancies to remain stable in most cities and even predicts improvement in the occupancy level in some of the commercial cities.

According to Mr Thadani, the growing ICE sector, along with the insurance sector, is likely to generate additional room night demand for hotels.The ARR will, however, remain largely unaffected as there will be increased hotel supply in the better quality mid market and budget hotel segments, which will force hoteliers to sell their room nights at competitive rates. "Following additional room supply, we expect rates to remain under pressure and perhaps recover in some cities where new supply is not particularly strong," Mr Thadani says.

"In the next fiscal, we expects an increased activity in the Indian hotel market. Apart from new hotel developments, we anticipate the consolidations and acquisitions of various independent hotels and small hotel groups," Mr Thadani said.